Cayman Islands

Beneficiaries' Rights to Trust Information

and Trustees' Duties of Confidence

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Beneficiaries' Rights to Trust Information and Trustees' Duties of Confidence

Introduction
The purpose of this memorandum is to consider Cayman Islands law in relation to beneficiaries' rights to
trust documents and trustees' obligations of confidentiality, in particular the Cayman Islands case of
Re Ojjeh's Trust, the Privy Council case of Schmidt v Rosewood Trust Company Ltd, the English High Court
case of Breakspear v Auckland and the Confidential Relationships (Preservation) Law (as amended) as it
applies to trusts.

Trustees' duty to account

It has long been said that a beneficiary is generally entitled to inspect all documents relating to the affairs
of the trust. In O'Rourke v Darbishire [1920] AC 581 the English House of Lords referred to a beneficiary's right
to access to documents on the basis of a "proprietary right".

However, the decision of the English Court of Appeal in In re Londonderry's Settlement [1965] Ch 918 made
clear that in some cases it is appropriate to withhold documents from beneficiaries on the grounds of
confidentiality. The Court set out categories of document that trustees are not normally bound to disclose,
on the basis of protecting the well-established principle that in the exercise of discretionary powers trustees
are not required to provide reasons.

In the English case of Armitage v Nurse [1998] Ch 241 it was held that a trustee owes an "irreducible core" of
obligations to beneficiaries, which is fundamental to the concept of a trust. If those obligations are missing
then there is no trust. The duty of trustees to account to beneficiaries for their administration of a trust is one
of those core obligations and the right of beneficiaries to trust documents enables them to enforce that
duty to account.

Although it is clear that, in principle, beneficiaries have a right to disclosure of certain trust documents,
there are limitations on this right and, as a result, it is often difficult for a trustee to decide how to react to
requests for disclosure.

The Cayman position

Re Ojjeh's Trust [1992-93] CILR 348 is the most important case in the Cayman Islands on beneficiaries' rights
to inspect trust documents. In that case it was held (applying the dicta of Lord Wrenbury in O'Rourke and
the dicta of Romer LJ and Evershed MR in Butt v Kelson [1952] Ch 197) that the principles governing the
disclosure of information to beneficiaries were as follows:

1. A beneficiary will normally be permitted to inspect and take copies of essential trust documents on
the basis of the proprietary right he holds over them.

2. That normal right does not extend to detailed information about the affairs of companies owned
by the trust. To obtain information of that kind, the beneficiary must make out a special case.

3. In order to make out a special case, the beneficiary must specify the documents that he or she
wishes to see.

4. There must be no valid objection by the trustees or directors, or (in special circumstances),
beneficiaries whom the trustees consider should properly be consulted upon the matter.

5. The beneficiary seeking disclosure must give proper assurances that he or she will not disclose the
documents to anybody but his or her own legal or other advisers and will not make copies save as
may be properly advised by his or her legal or other advisers.
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Beneficiaries' Rights to Trust Information and Trustees' Duties of Confidence

In Lemos v Coutts & Company (Cayman) Limited [1992-93] CILR 460 the only reported decision of the
Cayman Islands Court of Appeal on this issue, it was held that although a beneficiary has a proprietary right
to trust documents, it is by no means an absolute right and there may be documents or categories of
document which it would be just and proper to exclude from the ambit of the right where the documents
are not relevant or evidentially essential to the beneficiaries' case, or where the probative value is minimal
and considerably outweighed by prejudice to the other beneficiaries or to the proper administration of the
trust. However, it was held that where the beneficiary is making serious allegations impugning the validity
of the trustees' actions, it is only in an exceptional case that an absolute refusal of an application for
accounts would be justified. Again, the Court emphasised that each case had to be considered on its
merits.

Recent developments
The decision of the Jersey Royal Court in In Re Rabaiotti 1989 Settlement [2002] 2 ITELR 763 concerned an
application by the trustees of discretionary settlements. The Jersey Court held that there was a strong
presumption in favour of beneficiaries seeing trust documents, unless it could be shown that there was a
good reason why disclosure was not in the interests of the beneficiaries as a whole. As regards letters of
wishes, the presumption was against disclosure on the basis that the settlor was likely to have intended the
letter to be confidential, although the Court could and would order disclosure where there were good
grounds to do so.

In Schmidt v Rosewood Trust Limited [2003] 2 WLR 1442 the Judicial Committee of the Privy Council held
that rather than considering whether or not a beneficiary has a proprietary right to information, the correct
approach is to regard the right to seek disclosure of trust documents as one aspect of the Court's inherent
jurisdiction to supervise, and if necessary to intervene in, the administration of trusts. Lord Walker stated that
the dictum of Lord Wrenbury in O'Rourke could not be regarded as a binding decision that a
beneficiary's right or claim to disclosure of trust documents or information must always have the proprietary
basis of a transmissible interest in trust property. The Privy Council therefore concluded 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 application with no more than a theoretical possibility of
benefit ought not to be granted any relief."

The Jersey Royal Court in Sarah Daile Freeman and others v Ansbacher Trustees (Jersey) Limited [2009] JRC
003 followed Schmidt in holding that there was no good reason to draw a "bright dividing line" between the
nature of the contingent interest in trust assets of the discretionary objects of a trust and those of the
discretionary objects of a mere power in the context of a claim for breach of trust to be brought by the
beneficiaries although they were objects of a mere power.

In Wingate v Butterfield Trust (Bermuda) Ltd [2008] WTLR 357 the Supreme Court of Bermuda also applied
Schmidt and found that any documents produced in the course of the administration of the trust were
"trust documents" capable of being disclosed to beneficiaries. It was ordered that the beneficiaries be
provided with historical trust documents, but the Court refused to order that accounts be produced to the
beneficiaries in common form, because to produce them would not be productive in the particular case.
It appears clear that the Cayman Court will also apply Schmidt principles in future cases in this area.

The English decision of Briggs J in Breakspear v Auckland [2008] EWHC 220 (Ch) is significant both as the first
English case to consider disclosure of letters of wishes to beneficiaries and as a comprehensive summary of
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the law in this area. Briggs J said that there is an inevitable tension between confidentiality and disclosure
in relation to letters of wishes, but, applying Londonderry, he said:

"It is in the interests of beneficiaries of family discretionary trusts, and advantageous to the due
administration of such trusts, that the exercise by trustees of their dispositive discretionary powers
be regarded, from start to finish, as an essentially confidential process."

However, specifically in relation to the disclosure of a letter of wishes he stated that:

"There are no fixed rules, and the trustees need not approach the question with any predisposition
towards disclosure or non-disclosure."

The current position under Cayman law is therefore, that although trustees have a duty to provide
information to beneficiaries arising from the trustees' fiduciary obligation to account for their dealings with
the trust property, no beneficiary is entitled as of right to disclosure of trust documents or trust information.
Indeed, there may be compelling reasons for refusing disclosure, but each case will depend on its own
facts.

The Confidential Relationships (Preservation) Law (as amended)

A trustee of a Cayman Islands trust may also have to consider the application of the
Confidential Relationships (Preservation) Law (as amended) (the "Confidential Relationships Law"),
which governs the disclosure of confidential information. The Law defines "confidential information" as
including information concerning any property which the recipient thereof is not, otherwise than in the
normal course of business, authorised by the principal to divulge. By section 5 of the
Confidential Relationships Law, subject to section 3(2), if a person is in possession of confidential information
(however obtained) and either divulges it or attempts, offers or threatens to divulge it, or wilfully obtains or
attempts to obtain confidential information, he will be guilty of an offence and liable on summary
conviction to a fine of CI$5,000.00 and to imprisonment for two years.

Subject to section 3(2), the Confidential Relationships Law applies to "all confidential information with
respect to the business of a professional nature which arises in or is brought into the Islands and to all
persons coming into possession of such information at any time thereafter whether they be within the
jurisdiction or thereout".

Section 3(2) sets out the circumstances in which the Confidential Relationships Law will not apply,
including the seeking, divulging or obtaining of confidential information by or to any professional person
acting in the normal course of business or with the consent, express or implied, of the relevant principals.

It follows that a professional trustee acting in the normal course of its business may not need to be
concerned about the Confidential Relationships Law. However, where a trustee is in possession of relevant
confidential information from a third party (ie where the beneficiary is not able to assert that he has a
proprietary right to the information) and does not have the consent of that third party to divulge the
information, then section 5 of the Confidential Relationships Law may apply. In those circumstances,
the trustee should not disclose information to a beneficiary without an appropriate Court order.

The Confidential Relationships Law contemplates that an application may be made under section 4 of that
Law for directions, but only where proceedings (whether before a Court, tribunal or other authority) are on
foot. However, in the ordinary case, there will be no extant proceedings and, therefore, the trustee will be
unable to invoke section 4. Instead, the trustee should apply to the Court for directions.
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Beneficiaries' Rights to Trust Information and Trustees' Duties of Confidence

Applications for directions

In the Cayman Islands (in common with other jurisdictions) a trustee may apply to the Court for directions
under section 48 of the Trusts Law (as amended)(the "Trusts Law"). Indeed, trustees and beneficiaries in the
Cayman Islands are positively encouraged to refer disputes as to disclosure to the Grand Court.
For example, in Ojjeh, the Judge said "…the trustees and the beneficiaries should be in no doubt that they
should refer disputes as to disclosure to this Court".

The Trusts Law enables a trustee to apply to the Court at any time for "an opinion, advice or direction on
any question respecting the management or administration of the trust money or the assets of any testator
or intestate…". The trustee should serve the application on all persons with an interest in the application.
It is also possible to ask the Court for a direction about whom to serve the application on and/or who
should attend the hearing.

Provided that the trustee acts on the opinion, advice or direction given by the Court, he or she will be
deemed to have discharged his or her duty as trustee in respect of the subject matter of the application,
unless the trustee has been guilty of "any fraud, wilful concealment or misrepresentation in obtaining such
opinion, advice or direction".

STAR trusts
STAR trusts are set up under Part VIII of the Trusts Law, the objects of which may be persons or purposes or
both. The settlor specifies in the trust instrument who has standing to enforce the STAR trust, and that
person (or those persons) is/are known as the enforcer(s). Enforcers need not be beneficiaries, and section
100(1) of the Trust Law states "A beneficiary of a [STAR] trust does not, as such, have standing to enforce the
trust, or an enforceable right against a trustee or an enforcer, or an enforceable right to the trust property".
Accordingly it is the enforcers, rather than any beneficiaries, of a STAR trust who have the right to disclosure
of appropriate trust information and the same principles applying to disclosure to beneficiaries of an
ordinary trust will apply.

Conclusion
Whilst trustees are under a duty to provide information arising out of their fiduciary obligation to account to
beneficiaries for their dealings with trust property, no beneficiary is entitled as of right to disclosure of trust
documents or trust information. In deciding whether or not to provide disclosure, the competing interests of
different beneficiaries, the trustees themselves and third parties must be considered. As a general principle
the trustee should consider disclosure unless there are good reasons to demonstrate that the need for
confidence or privacy outweighs other considerations. A trustee should in appropriate circumstances
apply to the Court for directions as to whether or not to give disclosure and the extent of any such
disclosure. The trustee should ensure that all relevant information is put before the Court on such an
application (a) to enable the Court to carry out the necessary balancing exercise, and (b) to ensure that
the trustee is adequately protected and can safely act in accordance with the Court's directions.
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Beneficiaries' Rights to Trust Information and Trustees' Duties of Confidence

For further information please refer to your usual contact or:

Cayman Islands London

Andrew Miller, Partner Deborah Poole, Partner
T: +1 345 814 4669 T: +44 (0)20 7220 4995
E: andrew.miller@walkersglobal.com E: deborah.poole@walkersglobal.com

British Virgin Islands Jersey

Chris McKenzie, Partner Nigel Weston, Partner
T: +1 284 852 2216 T: +44 (0)1534 700 788
E: chris.mckenzie@walkersglobal.com E: nigel.weston@walkersglobal.com

Hong Kong Dubai

Denise Wong, Partner Tim Buckley, Partner
T: +852 2596 3303 T: +971 4 363 7908
E: denise.wong@walkersglobal.com E: tim.buckley@walkersglobal.com

Singapore Dublin
Ashley Gunning, Partner Vicki Hazelden, Partner
T: +65 6595 4672 T: +353 (0)1 470 6665
E: ashley.gunning@walkersglobal.com E: vicki.hazelden@walkersglobal.com

The information contained in this memorandum is necessarily brief and general in nature and does not
constitute legal or taxation advice. Appropriate legal or other professional advice should be sought for
any specific matter.