Correct considerations when a beneficiary requests trust information
About an hour north of Sydney there is a small bay called Paradise Beach. On 30 December 1972, the Jamieson family intended to take the boat out water skiing, but some mechanical difficulties resulted in a decision to visit the local public swimming pool. Annette Jamieson stepped up to a diving board, thinking it safe to dive, and launched herself into the tidal pool. She became a quadriplegic from the resulting injury to her spine when she struck the bottom of the pool.
With the support of her father, Ms Jamieson sued the Warringah Shire Council for negligence in their care of the pool. Ms Jamieson was awarded the sum of about $1,029,000 AUD in compensation – a record-breaking pay-out at that time.
Ms Jamieson’s father found investment opportunities for the funds and managed them in keeping with Ms Jamieson’s decisions and input. In 1990 the Lambie Trust (“the Trust”) was formed to hold the funds which Ms Jamieson had been awarded and those that, by good investment and business decisions, had arisen from them.
While the Trust has had various trustees during its lifetime, Ms Jamieson is now the director and shareholder of the sole trustee company, Lambie Trust Ltd. Ms Jamieson and her sister, Prudence Addleman, are the sole discretionary and equal final beneficiaries of the Trust.
In 2002, the Trust distributed $4,257,000 to Mrs Addleman. This was the first time that Mrs Addleman became aware of the Trust. Mrs Addleman wrote to the Trustees in early 2003, requesting a copy of the Trust Deed, the Trust’s accounts and any other Trust documents. In early 2004, Mr Kemps, a solicitor and trustee of the Trust, responded with the Trust Deed and documents relating to the removal and appointment of trustees. Further, Mr Kemps noted that Mrs Addleman was a discretionary trustee, and as such she was not entitled to further distributions unless made at the trustee’s discretion.
In 2014, Mrs Addleman again contacted the trustee, now Lambie Trust Ltd. Mrs Addleman sought financial statements back to the Trust’s inception. The trustee declined to supply the requested documents to Mrs Addleman and explained that the trust was exclusively seeded by the compensation payment to Ms Jamieson. A signed statement from Mr Palmer, a nominal settlor of the Trust and Mr Jamieson’s nephew, confirmed that this was the case. Further, the relevant records did not exist in their entirety.
“I wanted to summarise the understanding [Mr Hargrave] and I had of Mr Jamieson’s wishes for ultimate distribution of Lambie Trust funds. Apart from the allowance to be paid to Mrs Jamieson’s relatives, the ultimate distribution of the Trust fund is to be as follows:
The trustees submitted to the High Court that they had satisfied these wishes with the 2002 distribution to Mrs Addleman, intended to be her entire entitlement. The High Court found in favour of the trustees, listing seven major reasons for that decision:
Further, the High Court noted that the Trust was a ‘sole purposes trust in effect’ as it was effectively established only for the support and maintenance of Ms Jamieson. Mrs Addleman contended on appeal that the High Court erred in its decision as there was no sound evidential basis for determining that Mrs Addleman was not entitled to the disclosure. The Court of Appeal outlined the factors to be considered from the leading case on a beneficiary’s right to information, Erceg v Erceg  NZSC 28 at :
The Supreme Court in Erceg considered that the strongest case would be a request by a ‘close beneficiary for disclosure of the trust deed and the trust accounts, which would be the minimum needed to scrutinise the trustees’ actions in order to hold them to account.’
The Court of Appeal confirmed that Mrs Addleman was a close beneficiary. While her request may have been too broad, that did not mean that the request should have been completely denied. Further, a trustee’s fundamental duty includes keeping proper accounts, as a function of the trustees’ fiduciary duty.
The Court noted that, apart from Mrs Addleman and her husband, the trustee and other beneficiaries were controlled by Ms Jamieson. Therefore, only Mrs Addleman could hold the Trust to account. The Court’s focus was on the need for the beneficiary to be able to properly scrutinise the Trust – documents necessary for such scrutiny must be made available to a beneficiary in keeping with the principles of Erceg. While the Court noted that evidence of misconduct would strengthen an information request from a beneficiary, evidence of misconduct was only one factor to be considered in deciding a beneficiary’s right to information.
The Court of Appeal overturned the High Court’s finding that the Trust was effectively a sole purpose trust for the following reasons:
As to point 5, the Court accepted new, albeit not fresh, evidence from Mrs Addleman which established the following timeline:
Records from the Overseas Investment Commission established that the Howick Parklands Ltd purchase was ultimately funded by a company controlled by one of Mr Jamieson’s family trusts, which had assets worth $12,000,000 AUD in 1986, prior to the formation of the Lambie Trust. The shares in Howick Parklands Ltd were transferred to the Trust by Mr Palmer in 1991 as part of the settlement of the Trust. As a result of these purchases prior to the settlement of the family trust, the Court expressed doubt as to whether the compensation payment and monies earned thereof could have been the sole source of the Trust’s assets and funds.
Finally, to address the remaining issues raised by the High Court, the Court of Appeal noted that:
Therefore, the appeal was allowed and the trustee ordered to supply Mrs Addleman with all of following that were in the trustees possession:
The decision of the Court of Appeal aligns with a shift in trustees’ duties and information sharing obligations. The Trusts Act 2019 (“the 2019 Act”) has introduced a new regime for trustee duties and information obligations.
The 2019 Act imposes the reasonableness test on a review of the trustee’s actions by the Court if those actions are not or were not reasonably open to the trustee in the circumstances. This test likely gives beneficiaries broader rights to have trustee’s decisions reviewed or overturned on the grounds of reasonableness, including distributions and powers exercised under the trust deed. While the reasonableness test was not applied in the present case, the Court’s review was largely driven by a consideration of what was reasonable. This was evidenced by the Court’s decision to reframe the information request to align with the beneficiary’s entitlement and reasonable considerations of availability and confidentiality of documents.
Notably, the 2019 Act also introduces a new resettlement regime. This overrides trust deed resettlement regimes and means that consent of all beneficiaries can force the trustees to terminate or resettle a trust. The Public Trust’s recommendations on the 2019 Act noted that the language implied that a trustee could not resettle or terminate a trust, even if empowered by the trust deed to do so, without the consent of all beneficiaries. This interpretation was confirmed by the Law Commission, which considered that the intention of the statutory scheme balanced the rights of all parties involved.
The role of the beneficiary is to benefit from the trust. A trustee is administrator of the trust deed. Therefore, a variation, resettlement or termination of the trust deed will affect the beneficiaries the most. It makes sense for beneficiaries to consent to any variation, resettlement or termination that may affect their interests, and the Court can assist if no consensus can be reached. As Mrs Addleman and Ms Jamieson are both beneficiaries, this rule could allow Mrs Addleman to prevent the Trust from simply being ‘wound up’ and the funds settled into a new Trust from which Mrs Addleman can not benefit.
The 2019 Act requires that all beneficiaries of a trust be given notice that they are a beneficiary. There is now a presumption that information must be supplied to a beneficiary. The underlying purpose of the relevant sections is to ensure beneficiaries have sufficient information to enable proper scrutiny of the management of the Trust. This is because trustee accountability to beneficiaries is recognised at common law as a fundamental characteristic of a trust. To give effect to this core trust principle, the relevant beneficiaries need to know about the trust. Otherwise, there is no way for beneficiaries to take action to enforce the trust against the trustee. This rule would have prevented Mrs Addleman from only becoming aware of her beneficiary status in 2002. Further, it indicates that Parliament intends for beneficiaries to be responsible for, and capable of, enforcing the proper administration and management of a Trust and its assets against the trustees. Exercising the Court’s powers to support Mrs Addleman in her information requests therefore aligns with Parliament’s intention.
Trustees still have flexibility to decline to provide information due to the degree and extent of the beneficiary's interest in the trust, as well as the likelihood the beneficiary will receive trust property in future. In addition, trustees can decline to provide information when it is impractical to give information to all beneficiaries or members of a class of beneficiaries. Further, trustees can decline to provide information if they think there is good reason to do so. These matters were all addressed by the Court of Appeal, which confirmed that Mrs Addleman was a close beneficiary and that she still had some reasonable prospect of further distributions from the Trust.
Finally, the Trusts Act 2019 has introduced mandatory duties that cannot be altered by Deed. These include:
While there is nothing to indicate that the trustee had not acted in accordance with these duties, the relevance of the terms of the trust cannot be overlooked. This is especially true for advisors.
The 2019 Act would only serve to strengthen any request for information by Mrs Addleman. In light of Parliament’s indicated intention, it is unlikely that a further appeal would reverse the Court’s decision. However, while Mrs Addleman may now be able to access the requested documents, this does not mean that she can influence the decision making powers of the trustees, who may still not see fit to distribute further funds to a discretionary beneficiary in future. After a long running and sometimes acrimonious relationship between sisters, the future of the Lambie Trust may well lie in reconstituting the trustee so that it is no longer under the sole control of Ms Jamieson.
© G D Clews 2020