This decision of the High Court of England and Wales is the latest in a line of cases relating to disclosure of trust documentation with particular focus on the letter of wishes.

The Facts

The beneficiaries applied to the Court for disclosure of a letter of wishes written contemporaneously with the establishment of the trust and of details of a subsequent oral expression of wishes by the settlor. The claimants had become aware of the trust some ten years after it was established when one of them was informed that he was a potential object of benefit under the trust. The trustees disclosed the trust deed but refused disclosure of the letter of wishes. They said it was on the basis that it was confidential and that disclosure would lead to family discord. In addition they considered that one of the claimants was only an object of benefit and therefore had no entitlement to documentation. The Court considered the issue of disclosure of the letter of wishes and details of the oral statement of wishes on the same basis. The judgment provides useful practical guidance for trustees in relation to the nature of letters of wishes, issues of confidentiality, provision of reasons by trustees and circumstances in which issues of disclosure may arise.

What is a letter of wishes?

In the judgment, the Court describes a letter of wishes as being a mechanism for the communication by a settlor to trustees of the settlement of non-binding requests by him to take certain matters into account when exercising theirdiscretionary powers. They are used mainly to accompany family discretionary trusts although they can be used in other contexts, for example in employee trusts or fixed interest trusts.

Is a letter of wishes confidential?

Briggs J notes there is much uncertainty as to the extent to which letters of wishes are confidential and that this arises from the tension between the advantages of confidentiality on the one hand and of disclosure on the other. Enshrouding letters of wishes in confidentiality allows settlors to express in writing beliefs, expectations and possibly prejudices about the beneficiaries which will be relevant to the trustees in administering the trust but which it may be hurtful or undesirable to include in a document, which the beneficiaries have a right to inspect. On a subjective level, this may serve a selfish desire of the settlor to keep such wishes secret from the family. Equally it may be beneficial to all to preserve family harmony and respect and to enable trustees to be properly briefed as to matters relevant to the exercise of their discretionary powers, rather than to be in ignorance of those matters. On the other hand, disclosure of letters of wishes to beneficiaries may assist them in monitoring the performance by trustees of their fiduciary obligations, and may assist the court in enforcing that performance where necessary and appropriate. Forward

The judge analysed the principal cases to date in this area. Over the years the law has tended to preserve the confidentiality of trustees’ decision-making process and tallow trustees immunity from giving reasons for theirdiscretionary decisions at the request of beneficiaries. The process of the exercise of discretionary dispositive powers by trustees is inherently confidential. This was the principle outlined in re Londonderry Settlement [1965] Ch 918. The confidentiality exists for the benefit of the beneficiaries and the due administration of the trust, rather than merely for the protection of the trustees. As a starting principle therefore Briggs J stated that as letters of wishes are brought into existence for the sole purpose of serving an inherently confidential process, it follows that they are properly to be regarded as confidential to substantially the same extent and effect as the process which they are intended to serve. Letters of wishes arising in the context of family discretionary trusts are therefore prima facie confidential.

Is the letter of wishes immune from disclosure?

The judge went on to cite with approval the Jersey case re Rabaiotti’s Settlement [2000] WTLR 953. In particular he favours it for its statement of the general position in relation to letters of wishes, namely that if the reasoning of the trustees on sensitive family matters is to be made known to a beneficiary this will inhibit the trustees’ full and free discussion and exercise of their powers. If the trustees are obliged to disclose such a document this would undermine their immunity from the obligation to provide reasons. This does not however mean that the letter of wishes will never be disclosed. The Court retains discretion under its general power to supervise the administration of trusts to disclose document which does not otherwise have to be disclosed if it is essential to do so.

How should trustees address the question of disclosure of letters of wishes?

Briggs J identifies three contexts in which the question of disclosure of a letter of wishes may arise:1. As a result of a request from a beneficiary to the trustees for information;2. As a result of an application to the Court either by the trustees or the beneficiaries for it to resolve the question of disclosure;3. In the context of litigation of an issue to which the letter of wishes is said to be relevant. The Court sets out the following guiding principles fortrustees:1. A request from a beneficiary to a trustee for documentation:• Generally the trustees should regard letters of wishes as confidential. However, such confidentiality may be maintained, relaxed, or if necessary abandoned, as they in their discretion see fit.• The discretion to maintain, relax or abandon confidence arises regardless of a request for disclosure by a beneficiary. Trustees should therefore consider whether or not to disclose the letter of wishes as and when the existence of the trust is first disclosed to the beneficiaries. Bac

• An express statement by the settlor that a letter of wishes is to be confidential should not fetter the trustees’ discretion as to whether disclosure is appropriate.

• Where a beneficiary makes a request for disclosure, that merely triggers an occasion upon which trustees need to exercise (or reconsider the exercise) of that discretion.

• Having made their decision, trustees are not required to give reasons for it, any more than in relation to any other exercise of their discretionary powers. Trustees will not be criticised for not giving reasons for their decision.

• The voluntary assertion of full or partial reasons may constitute a waiver by trustees of their immunity from having to give reasons. If they are given it will be permissible for the Courts to assess the rationality of those reasons.

• In a difficult case trustees may seek the directions of the court on the question of whether to disclose. They should bear in mind the considerable expense to the trust of doing so. Trustees will not be criticised if they choose not to apply to the court for directions even if a refusal is contemplated. Notwithstanding these comments, it would be prudent nevertheless for the trustees to document properly the decision not to doso.2. The Court may be invited by the trustees or beneficiaries to resolve the question of disclosure. The application may be framed in one of four ways

• The trustees may seek to surrender their discretion to the Court. If so, the Court will exercise its own discretion afresh, rather than reviewing any negative exercise of discretion by the trustees. Full disclosure will be required in accordance with the Court rules. This will probably include the letter of wishes. Where beneficiaries are convened to the application, the Court will need to decide whether disclosure to them should be restricted in the same way as occurs in the context of re Beddoe applications.

• The trustees may, without surrendering their discretion, invite the Court to bless their refusal; Such an application is likely to involve disclosure by the trustees of their reasons for refusal (which may include the contents of the letter of wishes).

• A disappointed beneficiary may apply to the Court byway of a challenge to the trustees’ refusal. Briggs J considers that an application in these circumstances may entitle the trustees (on the basis of the confidential nature of the decision making process) to decline to give reasons for their refusal. The disappointed beneficiary has to disclose grounds for impugning either the fairness or the honesty of the trustees’ decision. If he does not do so, the Court is unlikely to require the trustees to disclose their reasons.

• The beneficiary may seek to invoke an original discretion in the Court, as part of its jurisdiction in the administration of trusts. The beneficiary in these circumstances must demonstrate that an occasion has arisen where the interference of the Court is justified. A mere refusal of the trustees to disclose a letter of wishes, unaccompanied by reasons of male fides or unfairness, would not ordinarily justify such intervention.3. The letter of wishes may be relevant to an issue to be decided in the context of litigation. The principles to be applied are those applicable to disclosure of documentation in Court proceedings. Therefore issues of relevance of the documents sought to the issue in question and necessity take precedence over issues of confidentiality. Where the letter of wishes only illuminates the trustees’ reasons for the making of a discretionary decision, it maybe irrelevant and therefore not liable to be disclosed. This is unless the trustees, by a partial disclosure of their reasons, have raised the issue as to their rationality.

The decision

The application in this case fell under the second category above and was treated by the court as either a) a challenge by the beneficiaries to the refusal by the trustees to disclose or in the alternative b) as a request by the beneficiary to order disclosure under the Court's jurisdiction in the administration of trusts. As the trustees had not remained silent as to the reasons for their decision, the Court was able to examine rationality of the reasons put forward. This involved having regard to the content of the letter of wishes itself. It concluded that the approach of the trustees to their decision had been honest, fair and rational and that their discretion had been properly exercised. Therefore to the extent the application was a challenge to the exercise of the trustees' discretion, it failed. In addition no reason had been shown to justify the intervention of the Court in the administration of the trust. The desire of the beneficiaries to know how they may benefit in future and the content of the letter of wishes were insufficient to justify such intervention. There were however unusual circumstances in this case, which lead to the Court's ultimate decision to allow disclosure of the letter of wishes notwithstanding the above. The trustees had advised that they would be applying shortly to the Court to sanction a scheme of distribution of the entire trust fund. The content of the letter of wishes would relevant to the Court's decision at that stage. Further the risk of family division would be outweighed by the desirability of giving the beneficiaries a proper opportunity to address the Court and to do so they would need full knowledge of the content of the materials to which the trustees had had regard.

Please note that this briefing is only intended to provide a very general overview of the matters to which it relates. This briefing is not intended as legal advice and should not be relied on as such.