Guernsey Legal Resources

2 Prop Jet was owned by two brothers, Andrew Cunningham (“the respondent”), who owned 45%, and Jack Cunningham, who owned the remaining 55%. Both were directors of Prop Jet. Jack was responsible for the day-to-day management and conduct of the affairs of Prop Jet, whilst his brother played a less active role. Sadly, the brothers fell out, and these proceedings are the third set of litigation instituted by the respondent.

3 The principal asset of the FAG EBT is, or was, a company, Springforth Investments Ltd. (“Springforth”), which owns a property in California known as 41 Blue Lagoon, Laguna Beach, California.

    (i) The FAG EBT was established on December 29th, 1998.

    (ii) On May 24th, 1999, Springforth purchased the California property.

    (iii) In April 2002, Prop Jet sold its entire business to a company known as Focus Ltd. Twelve of the 13 employees and directors of Prop Jet at that time became employees of Focus. The respondent was the only person who did not become an employee of Focus.

    (iv) In May 2002, the respondent and another issued proceedings in California against Prop Jet, Springforth and another company (“the California proceedings”). The fifth cause of action in those proceedings was an application by the respondent for a declaratory order against

    (v) In February 2003, the respondent issued a petition in the High Court of Justice, Chancery Division (Companies Court), under the provisions of the Companies Act 1985 (“the UK proceedings”). He sought orders against Jack Cunningham and Prop Jet that, inter alia, Prop Jet and Jack Cunningham disclose financial and other information to him and that Jack Cunningham be ordered to purchase his shares in Prop Jet at a fair value, to be determined by the court; or, alternatively, that Prop Jet be wound up, it being just and equitable so to do.

    (vi) On October 9th, 2003, the trust deed constituting the FAG EBT was varied so as to include in the class of beneficiaries dependent cohabitees of directors and employees.

    (vii) Also on October 9th, 2003, the shares in Springforth were transferred to a sub-trust of the FAG EBT (according to a letter dated September 20th, 2004 from Carey Olsen to Advocate Harris, of Babbé Le Pelley Tostevin, who was then acting for the respondent). This is apparently recorded in the balance sheet of the FAG EBT for the year ended December 31st, 2003, which records a distribution in the sum of £495,403.

    (viii) The respondent withdrew the Californian proceedings in about January 2004 or shortly thereafter.

    (ix) On May 5th, 2004, Prop Jet was placed in compulsory liquidation.

    (x) On May 14th, 2004, the respondent, through his then advocates, wrote to the applicant requesting, inter alia, full and accurate information as to the state and amount of the property of the FAG EBT.

    (xi) On May 28th, 2004, the applicant replied with a copy of the accounts covering the period from December 29th, 1998 to December 31st, 2001, together with the trial balance showing the assets then held in the trust fund and stating that accounts for the period January 1st, 2002 to December 31st, 2003 would soon be prepared. Since that date, further correspondence has been exchanged which I do not need to review in detail. The outcome is that the respondent has not been satisfied with the information disclosed to him and, as a result, the applicant has considered it necessary to bring this application to the court for directions.

The respondent has brought a cross-application in similar terms.

5 The statutory duty of a trustee to give information is to be found in s.22(1) of the Trusts (Guernsey) Law 1989, as amended (“the 1989 Law”):

“Subject to the terms of the trust, a trustee shall, at all reasonable times, at the written request of any beneficiary (including any charity named in the trust) or of the settlor, provide full and accurate information as to the state and amount of the trust property.”

We are not concerned with s.22(2) as the FAG EBT was created after commencement of the Law.

“A trustee is not (subject to the terms of the trust and to any order of the court) obliged to disclose documents which reveal—

(a)    his deliberations as to how he should exercise his functions as trustee;

(b)    the reasons for any decision made in the exercise of those functions;

(c)    any material upon which such a decision was or might have been based.”

7 The right under Guernsey law of a member of a discretionary class of beneficiaries to receive information concerning the trust property was considered by the Guernsey Court of Appeal in Stuart-Hutcheson v. Spread Trustee Co. Ltd. (7). The Court of Appeal reviewed the position under English law and said:

“Under English law, beneficiaries, including discretionary beneficiaries, have a right, within limits, to receive information from the trustee in relation to the affairs of the trust. The basis of that right has been said to arise either because the beneficiary has some form of proprietary right in respect of trust documents or because the trustee has a duty to account to the beneficiaries in respect of his stewardship of the assets of the trust.”

“There is, to my mind, no antithesis between these two approaches. In essence, the duty of the trustee to provide information about the trust and its assets arises from the obligations of a trustee towards the beneficiaries of the trust that are inherent in the concept of trusteeship. These include an obligation to hold and dispose of assets for the benefit of the beneficiaries in accordance with the terms of the trust,

“I have no doubt that, as a matter of principle, a beneficiary of a trust has a right to information from the trustees as to the assets of the trust and their manner of dealing with them . . .

A discretionary beneficiary, at any rate if he belongs to a limited class, as in most family trusts, has an interest in having the trust observed, by virtue of being a permissible object of the trustee’s discretion. This gives him a similar interest in receiving an account of the unappointed assets as any other kind of beneficiary. It may be highly material for a discretionary beneficiary to know what has happened to the trust fund, not least because the size and nature of the assets of the trust may be relevant to whether any share in them should be appointed to him.”

“accordingly, in my judgment, prior to the enactment of the Trusts Law, non-vested discretionary beneficiaries of a Guernsey trust had, under Guernsey customary law, a right to see documents of the trust and to receive information about the trust and its assets commensurate with that enjoyed by such beneficiaries under English law.”

“To the extent that the Trusts Law modifies the principles of English trust law, those principles must, of course, take effect as modified. But there is nothing in the Trusts Law that purports to take away any existing rights of non-vested discretionary beneficiaries to information. On ordinary principles, it should be presumed not to do so in the absence of clear provision to that effect. There is no such provision.”

12 Clarke, J.A. considered the ambit of s.22(1) and held that the section does not distinguish existing documents from other information, saying:

“Compliance with the duty to provide full and accurate information on the state and amount of the trust property may require the

13 In the judgment, Clarke, J.A. considered the appellant’s request for documents appointing or regarding the appointment of the trust property to beneficiaries and held that the appellant was entitled to see such material.

14 The right of a beneficiary of a discretionary trust to seek disclosure of trust documents was considered by the Privy Council on appeal from the Staff of Government Division of the Isle of Man in Schmidt v. Rosewood Trust Ltd. (6). Their Lordships reviewed a number of English and Commonwealth decisions, but they were not referred to the Guernsey case of Stuart-Hutcheson (7).

“66 Their Lordships have already indicated their view that a beneficiary’s right to seek disclosure of trust documents, although sometimes not inappropriately described as a proprietary right, is best approached as one aspect of the court’s inherent jurisdiction to supervise, and where appropriate intervene in, the administration of trusts. There is therefore in their Lordships’ view no reason to draw any bright dividing line either between transmissible and non-transmissible (that is, discretionary) interests, or between the rights of an object of a discretionary trust and those of the object of a mere power (of a fiduciary character). The differences in this context between trusts and powers are (as Lord Wilberforce demonstrated in In re Baden, [1971] A.C. 424, 448–449) a good deal less significant than the similarities. The tide of Commonwealth authority, although not entirely uniform, appears to be flowing in that direction.

67 However, the recent cases also confirm (as had been stated as long ago as In re Cowin, 33 Ch. D. 179 in 1886) that no beneficiary (and least of all a discretionary object) has any 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 competing 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 (and 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.”

16 In Stuart-Hutcheson (7), the Guernsey Court of Appeal held that the principles of English trust law would not be applicable in Guernsey where they were inconsistent with some provision of Guernsey customary or statute law. I therefore conclude that the principles established by the Privy Council in Schmidt (6) are applicable in Guernsey, subject to the provisions of s.22 of the 1989 Law. In other words, a beneficiary has the right to ask the court, in the exercise of its inherent jurisdiction to supervise trusts, to order the disclosure of trust information or documents, and also an entitlement as of right to receive information as to the state and amount of the trust property under s.22. The s.22 right is expressed to be subject to the terms of the trust. In practice, s.22 is commonly excluded under the express terms of the trust deed and, where it is excluded, the beneficiary’s only entitlement to trust documents will be at the discretion of the court, pursuant to the principles in Schmidt. Disclosure is also subject, of course, to the provisions of s.33 of the 1989 Law.

17 Advocate Friedlaender, appearing for the applicant trustee, argued that disclosure may be refused on the grounds of confidentiality, hostility or commercial sensitivity. He placed great emphasis on the second of those grounds and argued that the respondent is seeking disclosure in order to attack the validity of the FAG EBT.

“the directors, former directors, other employees and former employees from time to time of [Prop Jet], and the wives, husbands, widows, widowers, children, step-children and adopted children, and the spouses and former spouses (whether or not re-married) of such children, and remoter issue of all such.”

The definition was later amended to include dependent cohabitees.

19 The FAG EBT was set up to benefit employees and their families in order to reward and motivate the employees and to provide incentives for better performance on their part. Advocate Friedlaender submits that the respondent was well aware of the purposes for which the FAG EBT was established, as he was present by telephone at the meeting of the board of directors of Prop Jet when the purpose of the FAG EBT was explained to them and the directors resolved to proceed with the establishment of it.

“4. The FAG EBT was set up with the advice of the company’s accountant as a tax efficient means of providing benefit for myself and my brother, Jack Cunningham, out of the profits of Prop Jet . . .

5. As far as I am aware, the only benefits that other employees of

What he described is consistent with the express terms of the FAG EBT. However, in the California proceedings issued by the respondent, he pleaded that “the property on Blue Lagoon would be held by defendant Springforth as a resulting trustee for the benefit of plaintiff Cunningham as a further part of his retirement scheme.”

21 In the UK proceedings, it was pleaded on behalf of the respondent that Jack Cunningham represented to him that the acquisition of the California property was for the purpose of providing a further source of funds for the provision of a pension for the respondent.

22 Furthermore, in the skeleton argument lodged by him in these proceedings, the respondent stated that the dispute is not solely or even mainly about the FAG EBT, but about the division of the assets of Prop Jet.

23 Mr. Friedlaender argues that this demonstrates the respondent’s hostile intent and points out that in correspondence between the legal advisers, the respondent has refused to disclose the purpose for which the information is required.

24 Advocate Friedlaender submitted that because the respondent is seeking to attack the validity of the FAG EBT, he should not be entitled to the information. He relied upon the Jersey case of Nearco Trust Co. (Jersey) Ltd. v. A.M. (4). The Jersey Royal Court said it was sitting as an administrative court to give directions to a trustee as to whether or not it should be directed to take part in proceedings in Illinois. Essentially, the Illinois proceedings had started as a dispute over child maintenance, but they had developed into a challenge to the validity of two trusts established in Jersey, governed by Jersey law, and administered in Jersey by a Jersey-based trustee. The Jersey Royal Court directed itself that its duty was to act in the best interests of the beneficial class as a whole ([2003] WTLR 491, para. 16).

25 A similar approach appears to have been adopted by the Grand Court of the Cayman Islands in In re Lemos Trust Settlement (3), where certain beneficiaries had instituted proceedings in the Greek courts, seeking to set aside a Cayman Islands settlement. The beneficiaries sought an order from the Cayman Grand Court that trustees should be ordered to disclose trust documents to them. The court refused to grant such an order on the basis that it was not in the interests of the trust as a whole for documents to be provided in order for them to be used in proceedings elsewhere attacking the validity of the trust. (I only have a brief report available, and I am grateful to Birt, Deputy Bailiff for his analysis of the case in Nearco.)

26 In the present case, I accept that where I have a discretion to exercise, I should take account of the interests of the beneficial class as a whole. I

27 Advocate Friedlaender argues that information regarding the FAG EBT is confidential, as it arises out of the employment relationship between Prop Jet and its directors and employees. I do not accept that as a valid reason to deny the respondent access to the information. The business of Prop Jet has been sold, and all the employees other than the respondent have transferred their employment to the purchaser. The definition of the class of beneficiaries of the FAG EBT includes former directors and employees of Prop Jet, but not directors or employees of its successor company who were not formerly employed by Prop Jet. Prop Jet is now in liquidation and has no current employees. The respondent was a director of Prop Jet until it went into liquidation and in that capacity would have been entitled to have access to confidential information regarding the terms of employment of its employees.

28 Advocate Barnes, appearing for the respondent, relied upon a recent decision of the Auckland High Court in Foreman v. Kingstone (1), which, in following the decision of the Privy Council in Schmidt (6), placed great emphasis on the trustee’s duty of accountability. Potter, J. said ([2004] 1 NZLR 841, at para. 93):

“[W]hen a trust is established, obligations and correlative rights are created. Otherwise there is no trust. The fundamental duty of the trustees is to be accountable to all beneficiaries. That cannot be compromised by a settlor’s desire for confidentiality in relation to his and the trust’s personal and financial affairs unless there exist exceptional circumstances that outweigh the right of the beneficiaries to be informed.”

He cautioned that (ibid., at para. 89)—

“approached as a matter of principle, the entitlement of beneficiaries to disclosure of trust documents pursuant to the trustees’ fundamental obligation to be accountable to beneficiaries, must be measured against another fundamental principle that the autonomy of trustees in the exercise of their discretions under the trust instrument must be ensured. Hence, trustees are not obliged to disclose to beneficiaries their reasons for exercising their discretionary power (Re Londonderry’s Settlement).”

“One reason for pursuing disclosure is a general wish to check that the assets of the EBT have been properly administered, i.e. that they

The respondent is seeking to hold the applicant accountable for the manner in which it has dealt with the assets of the FAG EBT. I am satisfied that is a proper reason for seeking disclosure.

30 I have to ask myself whether the respondent has sufficient connection with the FAG EBT. I am satisfied that he has. At the time the assets were settled into the FAG EBT he was a 45% shareholder in the company, as well as a director who consented to the establishment of the FAG EBT. He remained a director until Prop Jet went into liquidation. He remains a member of the class of beneficiaries because it includes former directors. Advocate Friedlaender informed me that while Prop Jet was still operating, the applicant would account to the board of directors of Prop Jet, through its company secretary, and provide information, inter alia, as to what benefits or distributions had been made, and to whom. The applicant did so without question, but, apparently, was under no obligation to do so. It is perhaps surprising that neither in the trust deed nor elsewhere is there any requirement to account to Prop Jet, which is therefore only entitled to receive information pursuant to s.22 of the 1989 Law or at the discretion of the court. If there were a contractual obligation to provide information to Prop Jet, the liquidator of Prop Jet would be able to require it to be disclosed to him, and so the respondent might be able to obtain what he seeks through the liquidator. (He has asked the liquidator, but his file contains very little, presumably because the assets of the FAG EBT do not form part of the assets or liabilities of Prop Jet and therefore fall outside his area of responsibility.)

31 The trustee has been providing some information to the company secretary of Focus (the purchaser of the business of Prop Jet). It is not clear to me why it should do so—the employees of Focus are not, as such, within the class of beneficiaries. Only those employees who were formerly employed by Prop Jet may benefit, and that is by virtue of their former employment by that company.

32 It would be absurd if the applicant were responsible to nobody for its administration of the FAG EBT, but if I were to hold that it is not accountable to the respondent, the only other person who would be in a better position to seek information might be his brother, Jack Cunningham. The only basis on which he could seek to argue a better claim would be that he is the 55% shareholder. In my opinion, it would not be right to say that the applicant is accountable to Jack merely because he formerly held 55% of the shares of Prop Jet, whereas his brother only had 45%.

33 I therefore conclude that the respondent should be entitled to sufficient information concerning the distribution of the assets of the FAG EBT to enable him to ascertain whether it has been properly administered. I do

34 Having reviewed the relevant factual information and the legal principles, I turn to the details of the applications before me. The applicant is applying—

“pursuant to s.62 of the Trusts (Guernsey) Law 1989 (as amended by the Trusts (Amendment) (Guernsey) Law 1990) (‘the Trusts Law’) and all other power enabling it, for—

    (a) a declaration that the trustees of the FAG EBT may treat as confidential, and are not obliged to disclose to Andrew Cunningham and/or any beneficiary, any of the following:

ii(i)    any requests received from Prop Jet or any material upon which the trustees relied or based their decision regarding distributions to beneficiaries whether by way of payments, use of property or appointments to sub-trusts;

i(ii)    the identity of beneficiaries who received distributions or benefits, the amount of such distributions or benefits made to such beneficiaries or any documents or instruments evidencing such distributions or benefits;

(iii)    [withdrawn];

(iv)    any details of any sub-Trust of the FAG EBT;

    (b) a declaration that the information provided to date to the beneficiary, Andrew Cunningham, including the copies of the trust accounts, constitutes compliance with the trustees’ obligations under s.22(1) of the Trusts Law and otherwise in providing full and accurate information as to the state and amount of the trust property of the FAG EBT.

    (c) such consequential relief as this court deems fit; and

    (d) that all the costs of this application be paid from the trust fund.”

“to the court for orders that the applicant disclose to the respondent the following documents and/or information:

    (a) the destination of the main assets of the FAG EBT, including the shares in Springforth and any release of the loan formerly due to the FAG EBT;

    (b) the terms of the sub-trust referred to in Carey Olsen’s letter of September 20th, 2004; and

    (c) details of any requests received by the applicant for distributions including any oral request and discussions.”

37 Information as to the destination of the main assets of the FAG EBT falls outside the ambit of s.22(1) of the 1989 Law, and so the respondent is not entitled to receive it as of right. In my view, it is information that is required to ensure that the assets of the FAG EBT have been properly administered in accordance with its terms. For reasons I have already explained, I consider that the respondent is entitled to hold the applicant to account and, having considered the interests of the beneficial class as a whole, I grant an order in the terms requested.

38 I order that the terms of the sub-trust referred to in Carey Olsen’s letter of September 20th, 2004 shall also be disclosed. I understand that the sub-trust is a separate trust, constituted by its own deed and with its own class of beneficiaries which does not include the respondent. Under the terms of the FAG EBT, the trustee has power to appoint trust assets to one or more of the beneficiaries, subject to such trusts as it shall, in its absolute discretion, decide. In my judgment, having decided that the applicant is accountable to the respondent for its administration of the FAG EBT, I consider the respondent should be permitted to know the terms of the sub-trust in order to be satisfied that any appointment made by the trustee was within the scope of its powers.

39 Section 33 of the 1989 Law provides that a trustee is not obliged to disclose details of its deliberations, but the section is expressed to be subject to any order of the court, which, in my view, implies that the court has the power, in its discretion, to order disclosure of documents in certain circumstances. The reason I have ordered disclosure of the documents referred to in the preceding two paragraphs is to enable the respondent to be satisfied the FAG EBT has been properly administered. The respondent does not need the documents requested in para. (c) to establish whether assets have been distributed other than in accordance with the terms of the

40 I regard this as being of the same nature as para. (c) of the respondent’s application, and I therefore agree that the requests for the material referred to may be treated as confidential at this stage. Whilst the trustee may regard these documents as confidential, it is not obliged to do so and would be at liberty, in my view, to disclose the documents to the respondent if it wished to do so. I am not required to decide whether they would be discoverable in an action for breach of trust if the respondent later pursues such an action, although it is possible that they would then have to be disclosed.

42 This has been withdrawn, as the respondent is not pursuing his request for the disclosure of directors’ minutes of Springforth.

44 In my view, the applicant has complied with its requirement to disclose information under s.22(1) of the 1989 Law. It has disclosed trust accounts and has informed the respondent that only a relatively small sum remains within the FAG EBT, which, I suspect, may well be absorbed in expenses and fees.

45 If the parties consider any consequential relief is required to give effect to the terms of this order, they must make an application through the Greffe.