What Privilege Does A Trustee Enjoy?

This article was published in the July 2011 issue of the Association of Contentious Trust and Probate Specialists (ACTAPS) Newsletter

Introduction

The law of Ontario is "reasonably clear" that trustees are under a duty to provide beneficiaries regularly with accurate information, and to make trust documents available for inspection by beneficiaries.1 'Reasonably clear' of course means that it is not particularly clear.

Unquestionably a trustee owes a fundamental and comprehensive fiduciary duty to the beneficiaries of the trust. As D.W.M. Waters states in The Law of Trusts in Canada, 2nd ed. (1984), at p.31,

"The hallmark of a trust is the fiduciary relationship which it creates between the trustee and the beneficiary. The whole purpose of a trustee's existence is to administer property on behalf of another, to hold it exclusively for the other's enjoyment. The express trustee is expected to put the interests of the trust and the beneficiaries first in his thinking whenever he is exercising the powers or performing the duties of his office. His duty is one of selfless service."2

The rationale for granting beneficiaries access to trust information, is that it is necessary to enable beneficiaries to ascertain the purposes and expectations of the settlor, so that they may be in a position to monitor and enforce the performance of the trustee's duties.

The countervailing tension is that an unfettered right to disclosure of trust information would not be in the best interests of the trust. The disclosure of some confidential information might lead to discord among the beneficiaries. The right not to disclose trust information can promote the due administration of trusts. It can reduce the scope for litigation regarding the rationality of the exercise by trustees of their discretions. It encourages suitable candidates to accept the office of trustee by insulating their decisions from beneficiary scrutiny.

In this paper the "privilege" a trustee enjoys refers to the trustee's right not to disclose trust information on the basis of confidentiality, and on the basis of legal privilege.

Writers on this subject3 have identified three main types of information that beneficiaries may wish to have disclosed: (1) information about the existence of the trust, (2) information about the trust accounts, and (3) information about trustee's decisions, which could include, agendas for trustee meetings, copies of legal opinions obtained by the trustees, as well as certain written communications. What is the scope of the beneficiary's right to disclosure of this information? What is the trustee's duty?

This paper seeks to answer these questions. It concludes by offering some practical guidance for legal practitioners and trustees.

BENEFICIARIES' RIGHTS TO DISCLOSURE OF INFORMATION FROM A TRUSTEE

(A) CONFIDENTIALITY

The Traditional Rule: Beneficiaries have a Proprietary Right to Inspect Documents Relating to the Trust

The theoretical basis of the beneficiary's entitlement to inspect trust documents stems from O'Rourke v. Darbishire4, where Lord Wrenbury explained that the beneficiary's right to inspect documents relating to the trust is founded on a "proprietary right" of the beneficiary to the documents themselves:

The beneficiary is entitled to see all trust documents because they are trust documents and because he is a beneficiary. They are in this sense his own. Action or no action, he is entitled to access to them. This has nothing to do with discovery. The right to discovery is a right to see someone else's documents. The proprietary right is a right to access documents which are your own.5

Thus, the beneficiary is entitled to see documents obtained or prepared by the trustee in the administration of the trust and in the course of the trustee carrying out his or her duties as trustee. As David A. Steele commented in "Disclosure of Trust Documents Revisited"6:

"[d]ocuments connected with the trust's administration are said to be "trust documents" and, prima facie, are the property of the beneficiaries and, hence, available for their inspection."

The traditional proprietary right analysis has been criticised. For example, Steele has commented that in Ontario (Attorney General) v. Ballard Estate7, Lederman J. in an analysis of a solicitor-client privilege dispute about access by beneficiaries, "concluded that Lord Wrenbury's use of the term "proprietary" in this context was intended to be colloquial rather than technical."8 Justice Lederman stated as follows:

When Lord Wrenbury used the phrase "proprietary right" he was saying no more than the documents in question are in a sense the beneficiary's and is therefore entitled to access them. They are said to belong to the beneficiary not because he or she literally has an ownership interest in them but, rather, because the very reason that the solicitor was engaged and advice taken by the trustees was for the due administration of the estate and for the benefit of all beneficiaries who take or may take under the will or trust.9

Lederman J. noted deficiencies with a proprietary right analysis and cautioned against allowing a trustee to rely on the doctrine of privilege to deny access to information regarding the administration of a trust:

A property right analysis unfortunately leads one astray and to the illogical conclusion that a potential beneficiary has to wait until the completion of the administration of the estate and until there is specific property available to him or her before he or she can see information that the trustees have gathered. In a hypothetical case, it may be that in the end, the residual legatee will receive nothing because the executors or trustees have not acted in good faith or breached their fiduciary duty. It is untenable that in such circumstances, a trustee can invoke the doctrine of privilege merely because the residual legatee has received or will receive nothing under the trustee's administration when the reason for that outcome may be the trustee's own misconduct. The right to actual property therefore cannot be determinant of whether that individual is entitled to the information.10

With this analysis firmly in mind, Lederman J. held that in the circumstances of Ballard Estate, "beneficiary" includes one who merely has a contingent or residual interest under the will or trust.11

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