Confidentiality or disclosure?

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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
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