The recent case of Geneva Trust Company SA v D and Ors [2020] JRC 104 has served to shed interesting new light on the duties of outgoing trustees regarding disclosure of documents and information (in other words, trust records) by a retiring trustee to a new trustee.
The general principles of Jersey law in this area are relatively well-defined, as per the Trusts (Jersey) Law 1984 (the Trusts Law) and a not inconsiderable body of case law derived from the Royal Court in Jersey as well as of the courts of England and Wales. However, it is useful to both professional trustees and legal practitioners alike when the Court provides further elucidation.
The Geneva Trust Company case centred around the transfer of trust records for the D Discretionary Trust (the DDT) from the former trustee, Geneva Trust Company SA (formerly known as Rawlinson & Hunter Trustees SA) (the Former Trustee) to the current joint trustees, Fort Trustees Limited and Balchan Management Limited (collectively, the Current Trustees).
In October 2017, the Former Trustee had applied to the Court for orders approving its decision to retire as trustee of the DDT (as well as other connected trusts) in favour of the Current Trustees and for the former to be substituted for the Current Trustees in a number of actions outside Jersey in which it had acted as plaintiff (in respect of which there was a risk of substantial adverse costs orders being made against the Former Trustee personally).
In November 2017, the Court ordered that the Current Trustees should use their best endeavours to ensure the novation of all liabilities and to secure their substitution for the Former Trustee as parties to the extant litigation to ensure the release of the Former Trustee from that litigation (save for in respect of the adverse costs orders).
At the same time, pursuant to the summons of the Current Trustees, the Court made orders for delivery up by the Former Trustee to the Current Trustees of certain documentation in relation to the DDT. The principal type of documentation sought was correspondence between the Former Trustee's Jersey advocates and third parties. The Former Trustee duly complied.
In January 2018, the Court further ordered that the Former Trustee should disclose to the Current Trustees documentation pursuant to orders for discovery made in proceedings in the Commercial Division of the High Court of Justice.
The Former Trustee again duly complied. However, an additional general order made by the Court at that time was made to the effect that: "(the Former Trustee) shall forthwith deliver to (the Current Trustees) all documents (including, for the avoidance of doubt, both electronic and physical documents) in its possession belonging to (the DDT)". Perhaps inevitably, this wide-reaching and general order became a point of contention between the parties.
The Former Trustee promptly confirmed that it had delivered up all trust records contained on its local computer network hard drive (upon which it stored trust records with sub-folders for the trusts it administers) and the steps it was taking in relation to the physical/paper documents belonging to the DDT. The Current Trustees noted in response that certain documents held by the Former Trustee's English solicitors had not been included in the documents delivered up.
The Former Trustee responded to say that the English solicitors' records were not within Former Trustee's possession and were therefore outside of the scope of the order but that consent was given for the Current Trustees to seek such records from the English solicitors directly. Nevertheless a complication arose in that the Former Trustees owed their English solicitors fees in respect of services rendered 'for and in respect of the DDT', which could not be settled until the protector of the DDT was satisfied that such fees had been incurred for the benefit of the DDT rather than that of the Former Trustee personally.
Despite attempts by the parties to make progress, an impasse of 12 months ensued until the Current Trustees issued a fresh summons in January 2019 seeking relief on the basis that the Former Trustee was in breach of the previous orders. The Current Trustees sought an order that the Former Trustees should deliver up all documents in its possession belonging to the DDT not already provided including "all written communications and advices to and from (the Former Trustee's English solicitors)".
Dialogue ensued between the parties, which gave rise to further disclosure being made by the Former Trustees as well as the filing of further affidavits from both parties' representatives. The Current Trustees and its representatives had grown concerned about the term of qualification used by the Former Trustees which described the disclosure made as documentation "paid for by or from the DDT funds". This term was considered ambiguous and potentially too narrow.
The Current Trustees' representatives proffered various proposals to the English solicitors without success, such that a request was made by the English solicitors of the Former Trustee for full settlement of the outstanding fees, together with interest. The English solicitors had seemingly become exasperated with the dispute and were unwilling to release their records until such time as the account was settled.
The Current Trustees proposed that they and the Former Trustee enter into a form of Tomlin order which would involve discharging the English solicitors' fees and the grant of numerous confirmations and undertakings from the Former Trustee, including that it had "previously provided to the respondents all copies of all communications (including, but not limited to, e-mails or text messages sent to the personal accounts of the directors of the (the Former Trustee)), that relate to the DDT…" The Former Trustee robustly resisted the terms of the draft Tomlin order. This led to the Current Trustees amending its terms, nevertheless, and in spite of this fact, an agreed order remained beyond the reach of the parties leading to the June 2020 hearing, whereby the Current Trustees sought orders in connection with the amended proposed confirmations and undertakings.
The Trusts Law
A proper survey of the law in this area begins with an analysis of Article 34 of the Trusts Law, which provides as follows:
Position of outgoing trustee
1. Subject to paragraph (2), when a trustee resigns, retires, is removed or otherwise ceases to be a trustee, he or she shall duly surrender trust property in his or her possession or under his or her control.
2. Article 43A applies where a trustee resigns, retires, is removed or otherwise ceases to be a trustee.
3. A trustee who resigns, retires, is removed or otherwise ceases to be a trustee and has complied with paragraph (1) shall be released from liability to any beneficiary, trustee or person interested under the trust for any act or omission in relation to the trust property or the trustee's duty as a trustee except liability –
a) arising from any breach of trust to which such trustee (or in the case of a corporate trustee any of its officers or employees) was a party or to which the trustee was privy;
b) in respect of actions to recover from such trustee (or in the case of a corporate trustee any of its officers or employees) trust property of the proceeds of trust property in the possession of such trustee, officers or employees.
These provisions are designed to ensure that a new trustee is put into possession of trust property and records in order to properly administer the trust. The outgoing trustee's duty to transfer trust records is continuing if and when additional records are located within its possession, albeit that an outgoing trustee will often not wish to hand over all trust property before ensuring that provision is made for any outstanding liabilities that he may have incurred properly as trustee.
It is important to note that the court may also make appropriate vesting orders. One should note that Article 43A of the Trusts Law – which grants the outgoing trustee a non-possessory lien over the trust fund by way of security - applies in respect of the Article 34 outgoing trustee duties, therefore an outgoing trustee who fulfils its duties, has recourse to the lien.
In respect of the determination of records, the latest guidance as issued by STEP (the Society of Trustees and Estate Practitioners) is considered authoritative and typically includes all related instruments, trustee minutes, accounts and asset statements, professional advice paid for out of trust funds, correspondence (internal and external) and any other documents related to the day to day management of the trust.
Case Law
The Royal Court explored these principles in the case of Re Bird Charitable Trust [2012](1) JLR 62. At paragraph 23 of the judgment, the court said:-
"One starts from the position that a successor trustee is stepping into the shoes of a retiring trustee. He is assuming the same duties as the retiring trustee towards the beneficiaries. He is therefore on the face of it entitled to be placed in the same position as the retiring trustee so far as possible. Thus, if the retiring trustee has information or documents about the administration of a trust, he must normally make these available to the incoming trustee."
In Bird, the Court referred to a passage from Lewin on Trusts (then in its 18th edition), which remains unaltered in the current edition (the 20th edition) at 21: 119 – 121 and reads as follows:
Transfer of trust papers on change of trusteeship
A new trustee is entitled to require the former trustee to deliver up to him all records, books and other papers belonging to the trust. He is also entitled to inspect and copy other papers (not belonging to the trust) in the hands of the former trustee so far as they contain information relating to the trust. The papers to which he is so entitled include the minutes of meetings of the trustees and the internal memoranda of a corporate trustee, and correspondence files.
Judicial discretion
We consider that the court may, in exercise of the trust supervisory jurisdiction, qualify the above rights of [a] new trustee to delivery up and disclosure in special circumstances. But we do not consider that the same restrictions apply as in the case of disclosure to and inspection by beneficiaries. A beneficiary, for example, is not normally entitled to a sight of documents concerning the trustees' exercise of discretions under discretionary trusts or fiduciary powers, but they contain precisely the kind of information which a new trustee may need to have from the former trustee to enable him to exercise the discretions in the light of what has been done before. The same applies to a settlor's letter of wishes.
Provision of information by outgoing trustee
The new trustee may need to approach a former trustee for information and explanations not apparent from the trust papers. The former trustee is, to the extent that the request for information or explanation is reasonable in the circumstances, under an obligation to supply the information requested, and he must take reasonable care that any information which he does supply is accurate.
Lewin's analysis is helpful to practitioners in that it conveys the requirement for outgoing trustees to furnish their successors with the relevant records and to be supportive in respect of any queries which may arise, yet also reflecting the reality that an outgoing trustee should be protected from unreasonably extensive and/or repeat demands for documents or information.
The Court in Bird at paragraph 25 of the judgment went on to say:
Although one starts from a presumption that an incoming trustee should be placed in just as good a position in all respects as the outgoing trustee, nevertheless the Court has, in our judgment, a discretion as to whether specific documents or information are to be supplied in a particular case. We say that for the following reasons:-
(i) The only case to which we were referred (apart from Ogier Trustee) which deals specifically with this issue, namely Tiger-v-Barclays Bank Limited [1952] 1 All ER 85 suggests that there is such a discretion, albeit that that observation is obiter because of the way in which the case proceeded before the Court of Appeal.
(ii) Given that the obligation of an outgoing trustee extends to providing explanations to questions asked by an incoming trustee, it seems to us important that there be some element of control as to the reasonableness of such requests for information. One can envisage a situation where an outgoing trustee is plagued with unreasonable requests. There must be a mechanism for resolving a dispute of this nature and the Court must therefore be able to adjudicate on whether a particular matter needs to be explained or not.
The existence of a discretion is consistent with the approach of the Privy Council in Schmidt-v-Rosewood Trust Limited [2003] 2 AC 709. That case was of course concerned with questions of disclosure to a beneficiary rather than to an incoming trustee, but the Privy Council made it clear that questions of disclosure were best approached as one aspect of the Court’s inherent jurisdiction to supervise, and where appropriate, intervene in the administration of trusts. We see no reason why that approach is not equally applicable to issues as between retiring and incoming trustees.
Conclusion of the Geneva Trust Company case
Adopting the above principles, the Royal Court was ultimately satisfied that the Former Trustee was not in breach of the relevant disclosure order and dismissed the Current Trustees' summons. The Current Trustees were further ordered to pay in full all outstanding sums due to the English solicitors without further delay. Subject to the payment of such sums in full, the Former Trustee was directed to facilitate access by the Current Trustees to the files of the English solicitors and to any information held by them in relation to the DDT to which the Former Trustee would have been entitled as the original client of the English solicitors. The Royal Court concluded to say that the Former Trustees had its protection in giving its consent to unrestricted access and made no costs order in respect of the further (minimal) work required of the Former Trustees in an attempt to minimise any further antagonism between the parties.
Practical Considerations
From the perspective of the outgoing trustee
- From the very outset, consider how eDiscovery technology and providers can be used to take a good deal of pain out of the process of trawling through old records and speak to expert lawyers who have experience in dealing with such technology and providers. This is likely to save time, effort and expenditure.
- Be sure to carefully record all steps taken and decisions made as part of the documentary review process – what might seem obvious and sensible contemporaneously can become more difficult to recall and to describe with the passage of months and years when preparing to make an affidavit to the court to explain the process.
- Be upfront and transparent about any potential omissions – these can likely be explained and mitigated, but this is made more difficult if an initial attempt is made to conceal defects.
From the perspective of the incoming trustee
- Do not attempt to use the outgoing trustee's duty as an excuse to spare you of the detailed review required when on-boarding a new structure. Extensive correspondence regarding the potential existence of 'missing' documents is often futile.
- Nevertheless, once a detailed review of the structure has been carried out, per Tiger (as referenced in Bird), do not be afraid of seeking the input of the outgoing trustee.
- If there is a sense that it may be necessary to resort to litigation, keep a close eye on timescales and the prescription issues which may be involved. In Jersey trust law, the default period in which to bring a claim for a breach of trust is 3 years. If you are in any doubt as to when the relevant period commences, make enquiries of expert trust litigation lawyers.
For all concerned
- In respect of the potentially contentious category of legal advice: the general principle is that advice paid for out of trust funds is considered trust documentation (rather than personal to the outgoing trustee) and therefore should be transferred on retirement, therefore outgoing trustees should ensure the appropriate resources have been used to pay for advice and incoming trustees should be prepared to ask question if there appears to be discrepancies.
- Instant messaging and social media accounts are very unlikely to be deemed trust records.
Finally, if and when seeking court orders, aim for as much specificity as possible: the court will not be inclined to make blanket orders in favour of either party.