Tuesday, March 21, 2023

The (heavy) duty** to account

A reminder came to me recently about the duty of trustees ‘to account’.

Relevantly the High Court in Byrnes v Kendle [2011] HCA 26 highlighted that the term 'duty to account', encompasses several important obligations:
  1. A duty to keep records;
  2. A duty to report to the beneficiaries or the court concerning the administration of the trust; and
  3. The duty to pay amounts, the trustee is obliged to pay to the beneficiaries.
The trustee's duty to account is a fundamental fiduciary obligation imposed upon a trustee.

In discharging that duty, the trustee is required to keep proper accounts of the trust.

Importantly however, in relation to the right of a beneficiary to request information from a trustee, there is likely to be a divergence in terms of the level of detail a trustee of a discretionary trust is required to provide a beneficiary, as opposed to the trustee of a unit or fixed trust.

In particular, in relation to discretionary trusts, where each beneficiary only has a mere expectancy (that is, as explained in other View posts, the right to be considered), the duty to account imposed on a trustee is likely to be less onerous than for fixed trusts.

This is because the trustee of a discretionary trust also has a duty to act in the best interests of all beneficiaries - which means disclosure of certain information on demand of some beneficiaries may not in fact be appropriate, if the trustee on reasonable grounds so decides.

Practically, where there is contention around these issues it may be the conclusion in Schmidt v Rosewood Trust Ltd (Isle of Man) [2003] 2 A.C 709 is most relevant. In this case it was relevantly held that a beneficiary's right to seek disclosure of trust documents and accounts, is best approached as one aspect of the court's inherent jurisdiction to supervise, and if necessary intervene in, the administration of trusts.

The nature of any court's intervention will depend on the court's discretion on a case by case basis.

In particular, the court will determine:
  1. whether a discretionary object (or some other beneficiary with only a remote or wholly defeasible interest) should be granted relief at all;
  2. what classes of documents should be disclosed, either completely or in a redacted form; and
  3. what safeguards should be imposed (whether by undertakings to the court, arrangements for professional inspection, or otherwise) to limit the use which may be made of documents or information disclosed.
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** for the trainspotters, ‘Heavy Duty’ is a song from Spinal Tap. 

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