Jersey: Disclosure In Jersey: What, When And From Whom? (Part 2)

This is the second of two articles on disclosure in civil proceedings in Jersey. The first can be found here. This part focuses on two further categories of applicant: foreign insolvency office-holders, and beneficiaries seeking disclosure from their trustees.

Foreign Insolvency Office-Holders

The position of foreign office holders ("FOH") in insolvency matters has been clarified by the Royal Court (Bailhache, Bailiff) in Smith v Nedbank Private Wealth Limited1.

By way of background, FOHs from prescribed jurisdictions (the United Kingdom, Guernsey, the Isle of Man, Finland, Australia and the Republic of Ireland) can seek recognition of their appointment under Article 49 of the Bankruptcy (Désastre) (Jersey) Law 1990. Applicants from other jurisdictions can seek comparable recognition at common law on the basis of comity and reciprocity. The power to request disclosure (usually from financial institutions) is a common feature of recognition applications.

Importantly both types of application require a letter of request ("LOR") from the appointing court seeking the assistance of the Royal Court. In Smith the Royal Court considered whether a FOH was entitled to seek Norwich Pharmacal Order ("NPO") disclosure without a letter of request. This raised the broader question of whether a FOH can seek any relief in Jersey without first having their appointment formally recognised. Put briefly, the Court indicated that save in cases of great urgency (in which interim relief could be sought accompanied by an undertaking to apply promptly to the foreign court for a letter of request) a FOH cannot seek relief in Jersey before their appointment has been formally recognised via a LOR.

In Smith a US trustee in bankruptcy sought NPO relief in circumstances where there was considerable evidence that the bankrupt (prior to his death) had concealed assets through corporate entities and opaque property transactions to frustrate judgment creditors with claims in excess of US$50,000,000. The Viscount did not seek to be heard but expressed the view that the application should have been brought by way of recognition application. In support of this proposition the Viscount relied on the Guernsey cases of In the Matter of A Limited FURBS2 and In the Matter of X (a bankrupt)3. The relevance of these authorities is open to debate and they were not relied upon by the Court.

The Court heard the argument and indicated that it was minded to agree with the Viscount. The case was adjourned to enable the applicant to consider whether it wished to complete its NPO application (against an unfavourable indication) or seek the security of a LOR from the US. Perhaps unsurprisingly the applicant took the pragmatic course and obtained a LOR, and the relief was granted in full when the matter came back before the Court.

The Court issued a written judgment in which, in remarks that are strictly obiter, it explained its view that FOHs must be formally recognised to have locus standi to bring proceedings in Jersey.

At paragraph 13 the Court held that:

...A trustee in bankruptcy acts in most jurisdictions to the direction of the court which appointed him or her. The trustee comes into our jurisdiction giving effect in one form or another to the orders of that court or to comply with the obligations which arise out of some foreign statute. Indeed, the trustee in bankruptcy has no title to sue unless this court recognises it, because under our law nothing has taken place until that recognition to displace the presumption that the bankrupt has retained his, her or its natural capacity. The act of commencing proceedings would be a form of trespass on the jurisdiction of this Court, unless it had our approval. That is because only the Royal Court (or of course on appeal, the Court of Appeal and the Judicial Committee of the Privy Council) have jurisdiction in this island.

And at paragraph 18:

At the heart of these arrangements is the recognition that no foreign court should exercise jurisdiction in our island without our consent. A Trustee in Bankruptcy appointed by a foreign court must of course be subject to the direction of that court and it is potentially embarrassing if such a trustee is faced with a circumstance where the obligations to this court are in conflict with the obligations owed to the appointing court. That is another reason why the right approach is for letters of request to be issued by the foreign court seeking our assistance, and any such conflicts can be investigated and indeed avoided at the outset.

The Court summarised the principal submissions made by the applicant4 and stated that urgent relief could be obtained absent formal recognition with an undertaking to bring such an application forthwith5. Nevertheless its conclusion may be contentious because it creates a two-tiered system of access to the Jersey courts within which parties whose standing derives from appointment by a foreign court rank behind applicants acting in their own capacity and other species of office holder (e.g. a foreign trustee).

In theory, at least, even a contumelious applicant has standing to seek a disclosure order – the purpose of which is to serve the interests of justice – whereas a FOH must first incur the costs of a LOR application to achieve the same standing. In insolvency circumstances in which resources are limited, this could restrict the capacity of the FOH to discharge their duties.

In an article entitled Assistance to foreign insolvency office-holders in the conflict of laws: is the common law fit for purpose? the authors framed the English position in respect of NPO relief as follows6:

As regards rights to information, where England is the forum, the debtor could rely on the case law that establishes that a victim of wrongdoing is entitled to certain information from third parties whose innocent involvement in the wrongdoing is sufficient to bring into play the Norwich Pharmacal jurisdiction. In this situation, the forum court's focus will be on whether the respondent is sufficiently mixed up in the right type of wrongdoing and whether the other requirements for Norwich Pharmacal relief are available. The fact that the proceedings are being commenced by the foreign office-holder or in the name of an insolvent foreign company should be irrelevant to this analysis [emphasis added].

The issue can be put in practical context by the case of Riba Consultaria Empresarial Ltda v Pinnacle Trustees Limited7 (see previous article) in which a Brazilian judgment creditor obtained NPO relief in Jersey as an aid to enforcement. Would the fundamental justice of the matter have changed if, pursuant to Brazilian legal advice, the judgment debtor had been put into an insolvency process and the subsequent application for disclosure made by the FOH rather than the creditor? The answer would appear to be yes.

Plainly a FOH must seek recognition under domestic law if they wish to exercise powers derived from their office, which were conferred by a foreign court. The decision in Smith is closely reasoned and makes clear where the line is drawn in Jersey. A question remains whether recognition should be necessary merely to acquire locus to seek interim relief, i.e. where the FOH is not seeking to exercise any powers conferred by their appointment. The courts of Jersey (and elsewhere) regularly place reliance on judgments and orders made by foreign courts without requiring authentication by LOR. Therefore it seems arguable that locus alone should not require recognition, and that the threshold might sit more appropriately at the point when a FOH actually wants to exercise the substantive powers of their office.

In conclusion, on this of all topics, I should provide some disclosure of my own: I appeared for the applicant in Smith.

Trustee Disclosure

Disclosure of information and documents by trustees to beneficiaries has an entirely different jurisdictional basis from the categories of disclosure discussed so far.

The principles governing the disclosure of information and documents by trustees to beneficiaries of a Jersey trust are an adjunct to the principle that trustees are ultimately accountable to the beneficiaries for their administration of the trust assets. Those principles are derived from statute[8] and case law.9

Jersey has long recognised that the disclosure of trust information and documents to beneficiaries (and the extent of that disclosure) is a matter of the trustee's discretion, which is subject to an overriding judicial discretion.10 The court's discretion is preserved by the terms of the recast Article 29 Trusts (Jersey) Law 1984. The court's discretion also overrides any provision in the trust instrument that purports to restrict the flow of information to beneficiaries of the trust.11

The court's discretion forms part of the court's overriding supervisory jurisdiction in relation to the administration of a trust, and entitles the court to intervene and regulate the flow of information to beneficiaries having regard to the overall interests of the trust and the interests of the beneficial class as a whole.12

It follows that beneficiaries of a Jersey trust do not have an unassailable right or entitlement to documents or information about a trust of which they are beneficiaries.

That said, while the court retains an overriding discretion as to whether and to what extent disclosure is made to beneficiaries, certain types of information and documents are within well-established bounds of what is normally regarded as disclosable to beneficiaries. Absent a good reason to the contrary, they will carry a strong presumption in favour of disclosure. Other documents and information fall into a category in which the trustee's discretion to refuse disclosure is likely to be given greater latitude by the court.

Documents carrying a strong presumption in favour of disclosure:

  • The constitutive documents of the trust (including all instruments of addition, advancement, appointment and variation);
  • Documents which relate to or form part of the accounts of the trust; and
  • Information about the trustee's fees, charges and remuneration.

The basis upon which these categories of documents are strongly presumed to be disclosable to beneficiaries is because they relate to i) the terms on which the trust property is held for the beneficiaries and ii) the basic accountability of the trustee to the beneficiaries concerning the administration of the trust property.13

"Documents which relate to or form part of the trust accounts" has been interpreted very widely14 and would include the following:

  • The accounts for the trust;
  • The accounts of any underlying companies wholly owned by the trust;15
  • An inventory of all of the trust assets (including the assets of any underlying companies) and their location;
  • A statement of all liabilities attaching to the trust or to any of the trust's assets, their amount and to whom such liabilities are owed;
  • A statement and current valuation of any share portfolios;
  • A current statement of any bank balances of the trust;
  • Timesheets for all work the trustee has undertaken and charged to the trust;
  • A statement of all receipts/contributions to the trust;
  • A statement of all distributions, expenses, costs and outgoings from the trust;
  • All correspondence relating to the trustee's administration of the trust fund.

Documents carrying a presumption against disclosure16

  • Documents which do or tend to reveal the trustee's deliberations in the exercise of its powers and functions;
  • Documents which disclose the reasons for any exercise of its powers and functions;
  • Any material upon which such decisions were or might have been based.

The class of documents that these categories cover is not closed but it usually includes:

  • Letters and memoranda of wishes from the settlor;
  • Internal trust correspondence, minutes of meetings and records;
  • Legal advice and communications with lawyers on behalf of the trust;
  • Personal information about specific beneficiaries.

A trustee that exercises a power or discretion is not obliged to disclose the reasons for, or documents that show the reasons for, its decisions to the beneficiaries. That is the basis upon which the trustee is entitled to withhold disclosure of documents falling within the Re Londonderry exception from the beneficiaries.

Trustees have a discretion to refuse to give disclosure of a document or piece of information about a Jersey trust where the trustee is satisfied that it is in the interests of one or more of the beneficiaries, or the beneficiaries as a whole, to refuse the request.17 This discretion exists regardless of the nature or categorisation of the document.

There is only a prima facie presumption that the court will not exercise its discretion to order disclosure of documents falling within these categories if the trustee refuses to do so. Just as beneficiaries have no absolute right to demand disclosure of documents from the trustee, the trustee has no absolute right to withhold documents and information from the beneficiary.

Whether to give disclosure in the circumstances is ultimately a finely balanced judgment for the trustee and is often fact specific to the particular circumstances of a case.

The issue for the trustee is whether, if the matter went to court, the court would regard the trustee's refusal to disclose the document as being unreasonable in the particular circumstances. If the trustee has a genuine doubt about revealing documents or information about the trust, the correct course is for the trustee to submit the issue to the court for a direction as to how it should proceed.

A trustee who unreasonably refuses to disclose documents or information to a beneficiary which results in the beneficiary having to incur legal expense to obtain an order from the court for disclosure is on risk as to the costs of those proceedings. If it loses to the beneficiary, the trustee will usually be required to pay the beneficiary's costs of the application and may also be disentitled to its costs of defending such an application from the trust fund.18

Footnotes

1 [2018] JRC156

2 [2017] 21/2017

3 [2015] 36/2015

4 See paragraph 11

5 See paragraph 19

6 Nick Segal (Justice of the Grand Court of the Cayman Islands and Partner, Freshfields Bruckhaus Deringer LLP) Jonathan Harris QC (hon) (Serle Court) and Matthew Morrison (Serle Court) Insolv. Int. 2017, 30(8), 117-127

7 [2018] JRC033A

8 Art 29 Trusts (Jersey) Law 1984, as amended on 8 June 2018 by the Trusts (Amendment No 7) (Jersey) Law 2018

9 M v W Limited [2017] JRC 168a at 21-66

10 In Re Rabaiotti 1989 Settlement [2000 JLR 173], affirmed in

11 Art 29(5) Trusts (Jersey) Law 1984

12 The right of a beneficiary to seek disclosure from their trustee is governed by the proper law of the trust. Art 8, Hague Convention on the Law Applicable to Trusts and on Their Recognition.

13 In Re Y Trust [2011] JRC 155A

14 West v Lazard Brothers (Jersey) Limited [1987-88] JLR 414

15 The financial statements of any company that is not wholly owned by the trust or which is a commercial trading company may merit different treatment in order to preserve any commercially sensitive commercial information.

16 Art 29(4) Trusts (Jersey) Law 1984, also known as the Re Londonderry exception from the case of In Re Londonderry's Settlement [1956] Ch 918

17 Art 29(3) Trusts (Jersey) Law 1984

18 In Re I, J K, L Trust [2018] JRC214

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