GETTING THE REAL OIL: ADDLEMAN v LAMBIE (BENEFICIARIES’ RIGHTS TO TRUST INFORMATION)

Alex McDonald, Trust Barrister Auckland

Addleman v Lambie[1] gave the Court of Appeal an opportunity to apply Erceg[2] to a fresh set of facts.

THE FACTS

Prudence Addleman and her sister, Annette Jamieson were estranged sisters. They were the only living final beneficiaries of the Lambie Trust which was established in 1990. While there had been previous trustees, including their father, by 2006 Lambie Trustee Ltd was the sole trustee of the Trust. Ms Jamieson was the sole director and shareholder of Lambie Trustee Ltd.

Mrs Addleman was not even aware of the Trust’s existence until her father died in 2001. In 2002 Mrs Addleman received a letter from the Trust’s solicitor advising that a distribution of $4.257 million was to be made to her. The letter advised Mrs Addleman that the sum represented, “the full distribution of funds that will be coming to you from the Lambie Trust.”

In response, Mrs Addleman asked for a copy of the Trust deed, the Trust’s accounts and other Trust documents. The Trust’s solicitor sought legal advice and subsequently provided a copy of the Trust Deed and documents showing the appointment and removal of trustees plus an assurance that the distribution made to Mrs Addleman was “proper and that the Trustees have at all times acted honestly and fulfilled all of their duties required by law.”

Further correspondence followed in which Mrs Addleman sought financial statements. The Trust’s solicitor refused to provide the documents sought; insisting that the Trust was funded solely by the proceeds of an accident settlement due to Ms Jamieson and that Mrs Addleman had only been added as a beneficiary so that if Ms Jamieson died there would be another named family member.

Mrs Addleman filed High Court proceedings to obtain trust related financial information.

THE HIGH COURT DECISION

The High Court dismissed Mrs Addleman’s application for a disclosure. The Court gave seven principal reasons for doing so:

• The Trust was settled for the primary purpose of ensuring Ms Jamieson’s welfare and financial security; the cost of her care was extraordinarily high and would continue throughout her life;
• Mrs Addleman was only included as a beneficiary in case Ms Jamieson died early;
• The Trust was settled with Ms Jamieson’s compensation payment and earnings from that;
• Mrs Addleman had already received 25% of the Trust’s net funds and there was no real prospect of her receiving anything further;
• The fact that the trustee had already given Mrs Addleman a statement from a former trustee about the source of the Trust funds and a letter from the trustee’s solicitor recording the wishes of Mr Jamieson (Ms Jamieson and Mrs Addleman’s father);
• The prospect of further family conflict and litigation if the disclosure was ordered;
• There was no suggestion of breach of trust or fiduciary duty by the trustee in administering the Trust.

THE COURT OF APPEAL’S DECISION

The Court of Appeal overturned the High Court decision. In doing so the Court of Appeal decided that:

• because Ms Jamieson was not only a beneficiary but able to control the sole trustee there was no one else who could scrutinise the administration of the Trust and hold the trustee to account. Mrs Addleman was entitled to disclosure of sufficient documents to allow her to scrutinise whether the Trust had been administered properly;
• legal advice obtained by trustees to guide them and paid out of Trust funds are not privileged where disclosure is sought by beneficiaries;
• it should not be necessary for a beneficiary to demonstrate a breach of trust before being entitled to disclosure;
• there was nothing in the Trust deed itself to indicate that Mrs Addleman was named as a beneficiary merely as a backstop;
• there were numerous facts to negate Ms Jamieson’s position that the Trust was a “sole purpose trust” established for her care. These included that there were a number of potential other beneficiaries; there was no reference in the Trust deed itself to the Trust being a sole purpose trust; it was hard to understand why there were only relatively recent (not historical) statements by the former trustee (not Mr Jamieson) and the trustee’s solicitor regarding the purpose of the Trust; if the payment to Mrs Addleman was 25% that suggested total Trust assets exceeding $17 million in November 2002 – that, together with other records regarding property purchases meant that the Court was far from persuaded that the Trust was funded solely from the AU$1 million compensation payment to Ms Jamieson;
• trustees cannot escape their obligations to account to beneficiaries including through disclosure of core documents by asserting personal preferences for privacy and confidentiality. If there was any personal and private information in the documents sought, they could be redacted;
• the possibility that Mrs Addleman might pursue a claim against the trustees for failure to discharge their duties could not justify declining to order disclosure of trust documents.

COMMENTARY

The case provides a useful example of the circumstances in which it is simply not good enough for a trustee to essentially say, “Trust me – there is nothing to see here.”

Factors at play which informed the decision included that there was a sole trustee controlled by one of the two named beneficiaries; that the trustees had kept from Mrs Addleman the fact that she was a beneficiary for many years; that she was a close beneficiary and that unless disclosure of basic trust documents including the accounts was made there was effectively no one who could hold the trustees to account.

The Trusts Act 2019 will come into force in January 2021. It requires trustees to inform beneficiaries of the fact that they are beneficiaries of the trust, the name and contact details of trustees and the right to request a copy of the terms of the trust and unspecified trust information. This is a significant step in providing a mechanism for holding trustees to account.

Until then and, quite probably, thereafter however cases relating to disclosure of documents by trustees to beneficiaries will continue to be fact specific and to involve the judicial application of the ‘smell test’. Trustees will however need compelling reasons for refusing to disclose basic trust financial information or legal advice to close beneficiaries particularly when there is only one trustee.

Alex McDonald I Trust Barrister I Auckland

[1] (2019) NZCA 480

[2] [2017] NZSC 28, [2017] 1 NZLR 320