Information received by Trustee Shareholders and disclosure obligations

Information received by Trustee Shareholders

Modern trusts are commonly highly complex and often hold shares in trading companies as part of the trust’s assets.   Information held by a trust is likely, therefore, particularly in the case of significant or majority shareholdings, to include commercially sensitive information sourced from the company.  Issues can arise where information is received by trustees in different capacities, either as a trustee director subject to the duty of confidentiality to the company, or as a trustee shareholder who has a duty to beneficiaries.[1]  This complicates the issue of disclosure.  If sensitive information is disclosed, it is important that the party to whom it is disclosed understands it must not be disclosed onwards.  A confidentiality undertaking is likely to be appropriate.

Trustees cannot provide more information to one beneficiary than to another if they have similar interests, as they must be even handed as between beneficiaries.  Trustee shareholders should be open with beneficiaries, but withhold commercially sensitive information belonging to the company. In their position as shareholders, trustees have no duty of confidentiality to the company, but their duty to protect the interests of the trust as a whole would prevent them from revealing information that could damage the company’s interests.  On that basis, directors could properly pass information to trustee shareholders.[2]

If trustee shareholders have agreed to receive information about the company from third parties on a confidential basis, they cannot pass it on to beneficiaries. However, beneficiaries may seek information under the principles outlined in Butt v Kelson[3]which hold that they can request specific information such as company management accounts, which should be provided in the absence of valid objections.  For example, where the request could lead to commercially sensitive information being leaked to a competitor.

In the case Re Londonderry Settlement[4] the court upheld the general proposition that beneficiaries have a right to inspect trust documents; however confirmed that such a right does not necessarily extend to all documents.

What company information should a trustee shareholder obtain to ensure that the trust’s investments in a particular company are not at risk?

There is no simple answer other than such information as is reasonably necessary to ensure that the company is being properly administered. However, information often includes monthly management accounts, or the agenda and minutes of director’s meetings. A trustee should not simply rely on information available generally to the company’s shareholders and the public such as audited accounts.[5]

General trustee disclosure obligations

What information about the trust should trustees be withholding from disclosure?

In Re Londonderry Settlement[6] four specific categories of information were described where a trustee would be permitted to withhold information from beneficiaries:

  1. The agenda for trustee meetings

  2. Trustee correspondence

  3. Correspondence between trustees and beneficiaries

  4. Trustee minutes and any other document which might:

  1. disclose the deliberations of the trustees regarding exercise of their discretionary powers; or

  2. disclose reasons for the exercise of such powers; or

  3. disclose materials upon which such reasons were or might have been based.

When will the court require trust information to be disclosed?

In Schmidt v Rosewood[7] it was stated that the court will consider an application for disclosure in the context of all the circumstances.[8] It was held that beneficiaries are entitled to receive information which will enable them to ensure the accountability of the trustees in terms of the trust deed.[9]

The Guernsey decision Re B[10]highlighted a trustees’ duty of confidentiality when disclosure of confidential information may be in the best interests of the trustees. The case is seen as a reminder to trustees and beneficiaries that the duty of confidentiality is not absolute. For example, the duty does not apply to accessible or trivial information or where the public interest in maintaining confidence is outweighed by the public interest in disclosing information. 

The decision discussed potential limits on the trustees’ duty of confidentiality.  It was held that in certain circumstances a trustee may have the right to disclose confidential information to the extent it was reasonably necessary for the protection of the trustee’s personal interests. 

What information has the court made available to beneficiaries?

  • Trust Deed;

  • Financial statements;

  • Deeds of variation, retirement and appointment;

  • Valuations of trust assets; and

  • Legal opinions directly related to beneficiaries rights and interpretation of the Trust Deed.

How does the court make determinations regarding disclosure?

The Court has indicated that in exercising a discretion regarding disclosure it will balance the interests of trustees, beneficiaries and third parties. It will consider the nature of the information, issues of personal and commercial confidentiality and sensitivity; whether limitations need to be placed on the use of the documentation or information and whether some documents should be withheld in full or in part.

With specific regard to confidentiality it was concluded in Re B[11] that a trustee’s duty of confidentiality is a balancing exercise; weighing the interests of the parties against wider public interest to determine whether disclosure should be permitted.


If you would like further information on any issue raised in this update please contact:

Natasha Sutcliffe, Solicitor

DDI: 09 965 2663

Email: natasha.sutcliffe@clendons-ns.co.nz

 

Disclaimer

Further advice should be taken before relying on the contents of this summary.  Clendons North Shore accepts no responsibility for loss occasioned to any person acting or refraining from acting as a result of material in this summary.


 


[1] Johnson, Lucy Managed Approach, STEP, 2010.

[2] Johnson, Lucy Managed Approach, STEP, 2010.

[3] Butt v Kelson [1952] Ch 197.

[4] Re Londonderry’s Settlement [1965] Ch 918.

[5] Webb, Charlie and Akkouh, Tim Palgrave law Masters: Trusts Law, Fourth edition, 2015.

[6] Re Londonderry’s Settlement [1965] Ch 918.

[7] Schmidt v Rosewood Trust Ltd [2003] UKPC 26.

[8] Mourant, Ozannes Trustees Obligations of disclosure - a Cayman Island view Dec 2012.

[9] Law Commission Review of The Law of Trusts: Preferred Approach- Issues Paper 31.

[10] Re B (2012) Judgment 35/2012.

[11] Re B (2012) Judgment 35/2012.