Confidentiality or disclosure?

Greenwich Academic Literature Archive (GALA)– the University of Greenwich open access repositoryhttp://gala.gre.ac.uk__________________________________________________________________________________________Citation for published version:Pawlowski, Mark (2008) Confidentiality or disclosure? Trusts and Estates Law & Tax Journal, 96(May). pp. 12-14. ISSN 1743-5501Publisher’s version available at:__________________________________________________________________________________________Please note that where the full text version provided on GALA is not the final publishedversion, the version made available will be the most up-to-date full-text (post-print) version asprovided by the author(s). Where possible, or if citing, it is recommended that the publisher’s(definitive) version be consulted to ensure any subsequent changes to the text are noted.Citation for this version held on GALA:Pawlowski, Mark (2008) Confidentiality or disclosure? . London: Greenwich Academic LiteratureArchive.Available at: http://gala.gre.ac.uk/1424/__________________________________________________________________________________________Contact: gala@gre.ac.uk

T&ELTJ96 p12-14 Pawlowski 8/5/08 11:18 Page 12WISH LETTERSConfidentiality or disclosure?Professor Mark Pawlowski asks whether a beneficiary isentitled to disclosure of the settlor’s wishes under a familydiscretionary trustMark Pawlowski is abarrister and professor ofproperty law at theUniversity of Greenwich‘Since the settlor mustbe taken to haverelinquished all theirinterest in the trust uponits constitution, thequestion of whether ornot to relax or abandonconfidentiality was amatter exclusively forthe trustees themselves,or the court.’Awish letter provides the meansby which a settlor may expresstheir preferences to the trusteesof a discretionary trust regarding theexercise of the latter’s various discretionarypowers relating to distribution,investment and administration of thetrust. In the context of distribution, inparticular, the settlor’s non-bindingwishes enable them to express freelytheir own desires, expectations and(even) prejudices about the beneficiariesin an informal document that does notform part of the trust deed and which,therefore, may be kept secret in order toavoid family disharmony and embarrassment.This desire to maintain confidentiality,however, has the potential to conflictwith the legitimate desires of the beneficiariesto have knowledge of the contentsof a wish letter so as to enable them tohave a better understanding of the termsof the family settlement and to assesstheir expectations of benefit in planningfor their future. This inevitable tensionbetween the respective advantages anddisadvantages of confidentiality and disclosurein relation to wish letters formedthe subject of the recent High Courtruling of Briggs J in Breakspear v Ackland[2008].No duty to give reasonsIt is trite law that a beneficiary, as amatter of proprietary right, is entitled tosee all the trust documents: O’Rourke vDarbishire [1920]. It is also well established,however, that trustees whoexercise discretionary powers are notobliged to disclose why they have exercisedtheir discretion in a particular way:Re Beloved Wilke’s Charity [1851]. Indeed,they may refuse to allow a beneficiary toinspect documents, such as agendas andminutes of their meetings, which willreveal such information: Re Londonderry’sSettlement [1965].If, however, trustees volunteer reasonsfor their discretionary decisions,these may be the subject of judicialscrutiny if they do not justify thetrustees’ conclusions.The rationale for protecting thetrustees’ deliberations on discretionarymatters from disclosure is twofold. First,given their confidential role, trusteeswould find it impossible to exercise theirdiscretion properly in the knowledgethat their decisions may be open toinvestigation by the beneficiaries at anytime. Secondly, it would not be in thebest interests of the beneficiaries to makesuch enquiries, since such action couldlead to embittered family feelings anddamage the relationship between thetrustees and members of the family.Moreover, in the absence of any confidentialityin such matters, individualswould be reluctant to act as trustees infamily discretionary trusts. The principleof confidentiality, therefore, existsjust as much for the benefit of beneficiariesas it does for the protection of thetrustees. The rationale, however, hasalso been applied to the analogous situationof a trust of an employees’contributory pension scheme in thedesire to minimise the potential for disputeand litigation between variousgroups of employees: Wilson v LawDebenture Trust Corporation plc [1995].A different approachThe question of whether a wish letterfalls within the scope of the confidentialityprinciple was considered in theAustralian case of Hartigan NomineesProperty Ltd v Rydge [1992]. The majorityof the Court of Appeal of New South12 Trusts and Estates Law & Tax Journal May 2008

T&ELTJ96 p12-14 Pawlowski 8/5/08 11:18 Page 13WISH LETTERSWales held that the settlor’s lettershould not be disclosed to the beneficiaries.According to Mahoney JA,although the claim to disclosure wasbased on a proprietary right vested inthe beneficiaries, this could not prevailover the confidentiality that was inherentin a discretionary family trust.Sheller JA, on the other hand, preferredto base his decision on the more narrowground that the settlor had (by implication)imposed on the trustees anobligation to keep his wishes confidentialfrom the beneficiaries, by which thetrustees were bound in the absence ofany countervailing circumstances. In hisview, wish letters did not fall within theLondonderry class of documents thatwould otherwise fall to be excludedfrom disclosure to the beneficiaries.According to Sheller JA, a wish letterwas no different from the trust deeditself in so far as it did not, by itself(unlike the agenda and minutes of thetrustees’ meetings), reveal the trustees’motives and reasons for their decisions.A similar conclusion was reached byKirby P (in his dissent), when he concludedthat a wish letter was simply asupplement to the trust deed and, hence,a ‘trust document’ to which the beneficiarieswere entitled to have access. Such aletter was ‘not created by the trustees’and provided no ‘insight to the mind ofthe trustees’ (as opposed to the settlor)when making their decisions. More generally,Kirby P felt that there should be a‘greater level of accountability’ bytrustees in relation to the administrationof a trust. This notion of greater trusteeaccountability has been endorsed inother Commonwealth jurisdictions,notably New Zealand. In Foreman & ors vKingston & ors [2005] the High Court ofNew Zealand concluded that it was thefundamental duty of trustees to beaccountable to all beneficiaries. Moreover,that duty could not be overriddenby the settlor’s desire for confidentialityunless there were ‘exceptional circumstances’that outweighed ‘the right of thebeneficiaries to be informed’.A discretionary jurisdictionThe accountability approach was consideredby the Jersey Royal Court in ReRabaiotti’s Settlement [2000]. Interestingly,Kirby P’s conclusion in Hartigan that abeneficiary should generally be entitledto know the reasons for the trustees’decisions was firmly rejected. In thewords of the Deputy Bailiff:discretionary jurisdiction to order disclosurein appropriate cases.This conclusion was also reached inSchmidt v Rosewood Trust Ltd [2003],where the Privy Council held that thetrue basis of a beneficiary’s claim to disclosureof material by trustees was notproprietary in nature but merely anIn the absence of any confidentiality in such matters,individuals would be reluctant to act as trustees infamily discretionary trusts. The principle ofconfidentiality, therefore, exists just as much for thebenefit of beneficiaries as it does for the protectionof the trustees.aspect of the court’s inherent jurisdictionto supervise and, if necessary,intervene in the administration of atrust. Thus, according to Lord Walker:… no beneficiary (and least of all a discretionaryobject) has any entitlement asof right to disclosure of anything whichcan plausibly be described as a trust document.Especially when there are issuesas to personal or commercial confidentiality,the court may have to balance thecompeting interests to different beneficiaries,trustees themselves, and thirdparties. Disclosure may have to be limitedand safeguards may have to be put inplace.Re Beloved Wilke’s Charity(1851) 3 Mac & G 440Breakspear v Ackland[2008] EWHC 220 (Ch) (To be publishedin the June issue of WTLR)Foreman & ors v Kingston & ors[2005] WTLR 823Hartigan Nominees Property Ltd vRydge(1992) 29 NSWLR 405Re Londonderry’s Settlement[1965] Ch 918O’Rourke v Darbishire[1920] AC 581Re Rabaiotti’s Settlement[2000] WTLR 953Schmidt v Rosewood Trust Ltd[2003] WTLR 565Wilson v Law Debenture TrustCorporation plc[1995] 2 All ER 337… the fact that the views and reasoningof trustees on such sensitive matterscould be made available to any disaffectedbeneficiary would, the Courtbelieves, inhibit full and free discussion,and be likely to lead to ill-feeling and tofruitless litigation.In relation to wish letters, in particular,the Jersey Royal Court concludedthat these undoubtedly formed an integralpart of the trustees’ considerationof the exercise of their powers. As such,it was closely related to the decisionmakingprocess and to the reasons forthe decisions, and was not merely a documentwhich was ancillary to the trustdeed. There was a ‘strong presumption’,therefore, that a letter of wishes did nothave to be disclosed to a beneficiaryagainst the wishes of the trustees unlessthere were good grounds for doing so.The upshot was that the court retained aDisclosure, therefore, according tothe Privy Council, was ultimately a discretionaryfunction for the court and nota matter of proprietary right.Ruling in BreakspearNot surprisingly, Briggs J has endorsedthe confidentiality principle enunciatedin Re Londonderry. He held that it wasin the interests of the beneficiariesand advantageous to the administrationof family discretionary trusts that theexercise by trustees of their dispositivediscretionary powers should be regardedas essentially a confidentialprocess. Such confidentiality, however,was subject to the court’s overridingdiscretionary jurisdiction to order disclosurewhenever appropriate. In hiswords:It seems to me axiomatic that a documentbrought into existence for the soleMay 2008 Trusts and Estates Law & Tax Journal 13

T&ELTJ96 p12-14 Pawlowski 8/5/08 11:18 Page 14WISH LETTERSor predominant purpose of being used infurtherance of an inherently confidentialprocess is itself properly to be regardedas confidential, to substantially the sameextent and effect as the process which itis intended to serve.The fact, therefore, that a wish letterformed a companion to the trust deeditself did not preclude it from havingconfidential status. The trust deedmerely identified the trustees’ powersdiscretion, to order disclosure of thewish letter in favour of the beneficiary.In this connection, the trustees arguedthat disclosure would be divisive andlead to family discord. Against this,however, was the fact that the trusteeshad intended, in due course, to seekthe court’s approval for a future schemeof distribution of the trust assets.Inevitably, therefore, once the trusteesapplied for such approval, the contentsof the settlor’s wish letter wouldA mere refusal to disclose a wish letter by thetrustees, unaccompanied by any reasons or evidenceof bad faith or unfairness, will not ordinarily attractcourt intervention. If the trustees do volunteerreasons, these will be the subject of scrutiny bythe court.confidence protection, assuming fulldisclosure and an examination of theirreasoning prompted by seeking thecourt’s approval.ConclusionIt is apparent that the appropriatequestion (for both the trustees and thecourt) is one of discretion. As Briggs Jwas keen to emphasise, there are nofixed rules and trustees should notapproach the question with any predispositiontowards either disclosure ornon-disclosure:All relevant circumstances must be takeninto account, and in all cases other thanthose limited to strict review of the negativeexercise of a discretion, both thetrustees and the court have a range ofalternative responses, not limited to theblack and white question of disclosure ornon-disclosure.and so, logically, no confidentialityattached to that document. A wishletter, on the other hand:… operated… purely in furtherance of thetrustees’ confidential exercise of discretionarypowers.Such a letter, therefore, was immunefrom disclosure unless this was in theinterests of the sound administration ofthe trust and the discharge of thetrustees’ powers and discretions.Moreover, since the settlor must betaken to have relinquished all theirinterest in the trust upon its constitution,the question of whether or not torelax or abandon confidentiality was amatter exclusively for the trustees themselves,or the court. Interestingly, BriggsJ disagreed with the majority inHartigan on this point and suggestedthat the express imposition of an obligationof confidence by the settlor wasirrelevant to determining the issue ofdisclosure.Practical guidanceBriggs J went to provide guidance totrustees when confronted with the questionof disclosure at the request of abeneficiary under a family discretionarytrust – this is set out in the box, right.DecisionOn the facts in Breakspear itself, Briggs Jwas mindful, in the exercise of hisbecome relevant to the court’s appraisalof the proposed scheme and, consequently,the risk of family discordoccasioned by disclosure would be outweighedby the requirement to give thebeneficiaries a proper opportunity toaddress the court on the merits of thescheme. The trustees would then necessarilyhave to surrender any form ofSuch alternative responses mayinclude the partial disclosure of relevantdocuments (subject to obtaining appropriateundertakings to the court) andlimiting the use that may be made ofsuch documents. He also alluded to thepossibility of a private reading of a wishletter by the judge as part of the processof determining whether it should bedisclosed. ■A duty to disclose? The advice of Briggs J• Trustees should regard a wish letter as being inherently confidential.• Trustees have a discretion, regardless of any request for disclosure made by thebeneficiaries, to maintain, relax or abandon confidentiality if they consider this bestserves the interests of the beneficiaries and the due administration of the trust.• Where a beneficiary makes a request for disclosure, the trustees will need to exercisetheir discretion giving such weight to the making of (and the reasons for) that request asthey think fit.• The trustees are not obliged to give reasons for their decision.• In a difficult case, the trustees may seek the directions of the court on the question ofwhether to disclose, but must consider whether the difficulty of the question justifies thecost of any such application.• If an application is made to the court, full disclosure of the wish letter must be made tothe court. (The court will then consider whether, and to what extent, disclosure shouldbe made to the beneficiary for the purpose of the hearing.)• If a beneficiary seeks to invoke the court’s jurisdiction, it will be necessary for them toshow that an occasion has arisen that calls for the court’s interference. (A mere refusalto disclose a wish letter by the trustees, unaccompanied by any reasons or evidence ofbad faith or unfairness, will not ordinarily attract court intervention. If the trustees dovolunteer reasons, these will be the subject of scrutiny by the court.)14 Trusts and Estates Law & Tax JournalMay 2008