Breakspear & Ors v Ackland & Anor [2008] EWHC 220 (Ch)

[2008] EWHC 220 (Ch)Case No HC07C00971
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 19/02/2008
Before
MR JUSTICE BRIGGS
Between
MANUELA BREAKSPEARClaimantsPENELOPE MAY WHITEClaimantMARK DUNNINGClaimantROBERT CHARLES ACKLANDDefendantsPATRICIA ANN DUNNINGDefendant
Mr John Brisby QC and Mr John Eidinow (instructed by Paris Smith & Randall LLP, No 1 London Road, Southampton SO15 2AE) for ClaimantsMr Francis Barlow QC (instructed by Taylor Wessing, Carmelite, 50 Victoria Embankment, Blackfriars, London EC4Y 0DX) for DefendantsHearing Hearing dates: 24 th-25 th& 28 th January 2008
Judgment
[1]The claimants are beneficiaries under a settlement known as the Amport Account (“the Settlement”). By a Claim Form issued under Part 8 in April 2007 they seek the following three heads of relief against the defendant trustees:(1) Disclosure of a wish letter written to the then trustees by Basil James Dunning (“Basil”) who, by common consent, was the de facto settlor of the Settlement.(2) The setting aside of a purported addition of the second defendant (“Patricia”) as a beneficiary of the Settlement by deed dated 9th March 1995; and(3) Disclosure by the trustees of any appointments made or purported to be made pursuant to paragraph 7 of the Settlement.[2]Head 3 of the relief claimed has fallen away due to voluntary disclosure made by the defendants during the proceedings. That disclosure has revealed a purported appointment of income to Patricia, also on 9th March 1995. The claimants have sought to have that set aside as well. I shall refer to the addition of Patricia as beneficiary and the appointment to her of income collectively as the March 1995 appointments. The defendants have resisted providing the wish letter referred to in head 1, but their evidence has revealed that Basil also communicated wishes to the then trustees orally. As a result, the claimants seek disclosure of the content of those oral statements as well.[3]The claim to set aside the March 1995 appointments, while of real importance to the parties, turns upon the particular construction of the Settlement and the events surrounding the making of the appointments, which are of no wider public interest. By contrast, the claim for disclosure of Basil’s wish letter and of his oral statements of wishes raises a question of real importance for settlors, trustees, beneficiaries and trust lawyers, and of difficulty for a first instance judge. It is of importance because of the widespread use of wish letters in connection with discretionary trusts, and the uncertainty whether and to what extent they should generally be recognised as confidential. It is difficult both because the specific question has never been addressed by an English court, and because the relatively settled state of the law with regard to the identity and disclosure to beneficiaries of trust documents has been substantially re-cast, so far as concerns the underlying principles, by the decision of the Privy Council in Schmidt v. Rosewood Trust Ltd [2003] 2 AC 709, in a manner at least partially at variance with dicta in O’Rourke v. Darbishire [1920] AC 581 and Re Londonderry’s Settlement [1965] Ch 918. Furthermore, the question whether beneficiaries should normally be able to obtain disclosure of wish letters from their trustees has been the subject of controversy in the reported decisions of courts in Australia, New Zealand and the Channel Islands, which are accustomed to administer trusts in substantially the same manner as the English courts.[4]I shall therefore deal with the claim for disclosure of Basil’s wish letter first, and in greater detail than would normally be necessary to explain the reasons for the exercise of a discretion. For the most part my observations will be as applicable to his oral expressions of wishes as they are to the wish letter itself, save where I state otherwise. I shall therefore, for brevity, treat the question as one arising squarely in relation to the wish letter.

DISCLOSURE OF WISH LETTERS

[5]The essential characteristic of a wish letter (to which Basil’s is no exception) is that it is a mechanism for the communication by a settlor to trustees of the settlement of non-binding requests by him to take stated matters into account when exercising their discretionary powers. Typically, wish letters are concerned with the exercise of dispositive discretions, but they may include wishes in relation to the exercise of powers of investment, or of other purely administrative powers. For present purposes I am concerned with a wish letter which is substantially contemporaneous with the settlement itself. The question whether later wish letters have the same status is beyond the scope of this judgment.[6]The large increase in the use of wish letters has gone hand in hand with the rise in the popularity of discretionary trusts, in preference to the more detailed fixed interest trust. The combination of a broad discretionary trust accompanied by a wish letter may be said to have two particular advantages. The first, an advantage which it enjoys over the old-fashioned fixed interest trust, is that it preserves flexibility for the trustees in responding to changes in the beneficiaries’ circumstances which are not or cannot be foreseen by the settlor. The second advantage, which stems from the placing of the trusts affecting the property and the settlor’s non-binding wishes into separate documents, is that the settlor may make use of a confidential wish letter as the medium for the written expression of facts, beliefs, expectations, concerns and (occasionally) prejudices about the beneficiaries which it would or might be hurtful, impolitic or simply undesirable for him to include in a document which the beneficiaries had a right to inspect. That advantage may be summarised in the word confidentiality, so long as it is appreciated that the word has both a subjective and an objective connotation. Confidentiality may serve a purely selfish desire of the settlor to keep his wishes, beliefs and the communication of certain facts secret from the family. Objectively speaking, that secrecy may in many cases be thoroughly beneficial, since it may tend to preserve family harmony and mutual respect, while enabling trustees to be briefed as to matters relevant to the exercise of their discretionary powers, rather than kept in ignorance of them.[7]The use and advantages of wish letters in conjunction with broad discretionary trusts is not confined to family trusts. For example, the advantage of flexibility may be equally applicable to an employee trust. Nonetheless, the advantage of confidentiality is at its most obvious in relation to a family trust, and it is in the effect upon that advantage which any uncertainty or change in the law relating to disclosure of wish letters at the request of beneficiaries is at its most acute. Plainly, if the law is that, generally, wish letters are not disclosable, settlors will be encouraged to use them as the medium for the communication of valuable but confidential information relevant to the exercise of the trustees’ discretionary powers. If by contrast wish letters are generally disclosable, that potential advantage is likely to be wholly closed off for the future, and the disclosure of genuinely confidential information in existing wish letters at the request of beneficiaries is likely to risk causing precisely the harm which led to that information being included in a wish letter in the first place, and to defeat what may to date have been real expectations of confidentiality in the minds both of settlors and trustees.[8]Since few would argue that clearly and rationally expressed wishes and relevant information included by settlors in wish letters could be treated by trustees as wholly irrelevant to the exercise of their discretionary powers, it is inescapable that their content will potentially be relevant, both to beneficiaries in monitoring the performance by trustees of their fiduciary obligations, and to the court in enforcing that performance where necessary and appropriate. Furthermore, the contents of a relevant wish letter may make all the difference to a beneficiary in understanding, in the context of an otherwise broadly drafted discretionary trust, what are or may be his or her expectations of benefit from the assets of a family settlement. While such expectations may on occasion be damaging, in particular to young beneficiaries, a broad knowledge of their prospects may be of significant advantage to them in planning both their own lives, and the education and maintenance of their children and other dependants. It is incidentally for this latter purpose that the claimants say that they have made their claim to disclosure.[9]There is therefore an inevitable tension between on the one hand the advantages of confidentiality, and on the other hand, the advantages of disclosure, in relation to wish letters. It is precisely this tension which has generated the controversy evident in the Australian, New Zealand and Channel Islands authorities. It is tempting to say that the infinitely variable weight to be given to those competing considerations in any particular case is best resolved by the exercise of discretion by the judge resorted to for the resolution of the impasse, rather than by the laying down of rules or even guidelines. But in my judgment this superficially attractive solution has real disadvantages. The first is that unless the principles are generally understood, settlors are likely to treat the uncertainty as to the general confidentiality of wish letters as a disincentive to their beneficial use. The second is that the uncertainty is likely to lead to more rather than less applications to court to resolve questions of disclosure, and will therefore be a recipe for litigation. In the context of the likely asset base of even wealthy families, the attendant cost should be avoided if at all possible.[10]An issue as to disclosure of a wish letter by trustees to beneficiaries may arise in at least three distinct contexts, to which different legal principles apply. In its simplest form, the problem may arise because a beneficiary asks the trustees for disclosure, without threat of litigation, or even because, in the absence of any request, a trustee is uncertain whether to include a wish letter with the settlement deed, when initially appraising beneficiaries of their status as such. If the law is wholly uncertain as to whether wish letters are or ought generally to be disclosable, the resulting uncertainty will lead trustees regularly to have to seek the court’s directions, at inevitable cost to the beneficiaries. Equally, if the answer is that the question depends in every case upon the exercise of a judicial discretion, rather than upon the exercise of discretion by the trustees themselves, then litigation (if only in the form of an application for directions) may be the inevitable consequence of nearly every request. The assumption in Re Beddoe [1893] 1 Ch. 547 that trustees can always obtain the directions of the court at modest expense is, I am afraid, simply wrong in modern times.[11]The second typical circumstance in which the issue may arise is indeed that in which the court has been invited to resolve the question, as a discrete issue between trustees and beneficiaries. This may occur either because the trustees have, on their own initiative, sought directions from the court, or because, as in the present case, the beneficiaries have responded to a refusal by issuing a Part 8 Claim for disclosure. In such a case disclosure is not said to be justified on the grounds of its relevance to some other pleaded issue between the trustees and the beneficiaries, such as the question whether a particular purported exercise of a discretionary power was invalid. In the present case, it is not suggested that the wish letter is of any relevance to the separate issue as to the validity of the March 1995 appointments.[12]In this type of case, the question may be posed as a challenge to a previous discretionary refusal by the trustees to disclose the wish letter, in which case the law traditionally imposes considerable restraint upon the court. Alternatively it may be presented as the invocation of an original discretion of the court, exercisable as part of its inherent jurisdiction to supervise and if necessary intervene in the administration of trusts. Both such grounds are relied upon in the present case.[13]The third category of case in which the question of disclosure may arise is in the context of existing litigation about an issue in respect of which the wish letter is alleged to be a relevant document. In that context, disclosure of wish letters is merely an aspect of the general law and practice as to disclosure. Generally speaking, relevance and necessity are the governing criteria and confidentiality plays a very subordinate role. It is tempting to think that, because a determined beneficiary might circumvent the obstacle of confidentiality by litigating an issue to which the wish letter was said to be relevant, confidentiality could in truth be nothing but a temporary rearguard to cover a slow retreat by the trustees. But English law has developed a robust approach to “fishing” litigation of that kind.[14]Overhanging the whole of this analysis is the question whether, as one Australian judge has suggested, the traditional English recognition of the need to preserve the confidentiality of trustees’ decision making has been overtaken by changes in social attitudes, in which notions of openness and accountability are said to have gained prominence at the expense of privacy and confidentiality, in connection with dealings by persons with power to affect the lives, property and legal rights of others.

THE LAW

[15]The starting point is that English law has for over 150 years protected trustees from having to give reasons for their discretionary decisions at the request of beneficiaries. In Re Beloved Wilkes’s Charity (1851) 3 Mac. & G 440, Lord Truro LC held that the court’s duty of supervision was:
“… confined to the question of honesty, integrity, and fairness with which the deliberation has been conducted, and will not be extended to the accuracy of the conclusion arrived at, except in particular cases. If however, … Trustees think fit to state a reason, and the reason is one which does not justify their conclusion, then the Court may say that they have acted by mistake and in error, and that it will correct their decision; but if, without entering into details, they simply state, as in many cases it would be most prudent and judicious for them to do, that they have met and considered and come to a conclusion, the Court has then no means of saying that they have failed in their duty, or to consider the accuracy of their conclusion.”
Later, at page 449, he continued:
“I should say, as a general rule, that the Court ought not to require persons to state reasons for conduct which they are authorised to pursue, because such a statement made in one case, where it may possibly be done without evil and mischief, has a tendency to create an objection against those who, in other cases, do not make it, where a statement of reasons might be most mischievous.”
In relation to the disappointed beneficiary and his complainant father, he continued:
“they (the trustees) have forborne to state anything in the slightest degree disrespectful or painful to either, and in that I think they have acted a very judicious part; for they would, undoubtedly, have greatly increased that feeling of disappointment and displeasure which has arisen at the election of C. Joyce, if they had entered into any statement reflecting either upon Mr Gale or his son.”
[16]Both the principle and the exception where fiduciaries choose to give reasons were applied to the decisions of private company directors whether to permit transfers to new shareholders in Re Gresham Life Assurance Society (1872) LR 8 Ch App 446, in particular upon the ground that any other approach would be a recipe for litigation: see per Sir George Mellish LJ at page 452.[17]In Re Londonderry’s Settlement [1965] Ch 918, a default beneficiary under a settlement, dissatisfied with the decision by the trustees to appoint the remaining capital to other discretionary objects rather than to her, sought (in correspondence) the disclosure of a wide range of documents including trust accounts, the agendas for and minutes of trustees’ meetings, documents prepared for those meetings, correspondence between the trustees, the ‘appointors’ (rather like protectors) and the beneficiaries, and also between the settlor, one of the appointors and the trustees’ solicitors. The trustees provided the trust accounts and copies of earlier appointments, but took the view that disclosure of the further categories of documents sought would be contrary to the interests of the family as a whole. On a summons for directions, Plowman J ordered all those categories to be disclosed. The Court of Appeal allowed the trustees’ appeal.[18]The case for disclosure was heavily based upon the supposed proprietary right of beneficiaries to see trust documents, based upon dicta of Lords Parmoor and Wrenbury in O’Rourke v. Darbishire [1920] AC 581, at 619 and 626. As Lord Wrenbury put it:
“The beneficiary is entitled to see all the 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. A proprietary right is a right to access to documents which are your own.”
The argument was that all documents in the possession of trustees qua trustees are trust documents.[19]Counsel for the trustees did not challenge the general principle, but argued that the proprietary right must be subject to qualification by the established rule permitting trustees to exercise their discretionary powers without having to give or be interrogated as to their reasons. Thus the question whether access by beneficiaries to trust documents was a matter of proprietary right was not in issue.[20]All three members of the Court of Appeal were troubled by being asked to decide the case by reference to artificial categories of documents, rather than to concrete examples, see per Harman LJ at 931B to C and 934C to D, and per Danckwerts LJ at 934G to 935A. More importantly for present purposes, they found it equally unsatisfactory to attempt an answer to the questions before them by distinguishing between trust documents and other documents in the hands of trustees. They all preferred to base their decision on the principle that, whether or not any particular category were trust documents, any prima facie right of the beneficiaries to production of them was overridden by the principle that in the exercise of discretionary powers, trustees may not be required to provide or be interrogated as to their reasons. Thus, at page 933E Harman LJ said this:
“I would hold that even if documents of this type ought properly to be described as trust documents, they are protected for the special reason which protects the trustees’ deliberations on a discretionary matter from disclosure. If necessary, I hold that this principle overrides the ordinary rule. This is, in my judgment, no less in the true interest of the beneficiary than of the trustees.”
[21]Agreeing, Danckwerts LJ said this, at page 935E:
“Now as regards the letters written by individual beneficiaries, or other people for that matter, to the trustees, I think the right conclusion is that they are not really trust documents at all. But even if they be trust documents, it seems to me, in spite of the wide observations which were made by their Lordships in the House of Lords and others, that does not really solve our problem. It seems to me there must be cases in which documents in the hands of trustees ought not to be disclosed to any of the beneficiaries who desire to see them, and I think the point was a good one which was taken in the affidavit of Lord Nathan, that to disclose such documents might cause infinite trouble in the family, out of all proportion to the benefit which might be received from the inspection of the same. It seems to me that where trustees are given discretionary trusts which involve a decision upon matters between beneficiaries, viewing the merits and other rights to benefit under such a trust, the trustees are given a confidential role and they cannot properly exercise that confidential role if at any moment there is likely to be an investigation for the purpose of seeing whether they have exercised their discretion in the best possible manner … It appears to me that the documents are confidential and the trustees’ duty would become impossible and the execution of the trust would become impossible if the trustees were bound to disclose to any beneficiary any information or other matters in regard to beneficiaries that they had received.”
[22]Agreeing with both his brothers, Salmon LJ added this, at page 936G:
“The settlement gave the absolute discretion to appoint to the trustees and not to the courts. So long as the trustees exercised this power with the consent of persons called appointors under the settlement and exercised it bona fide with no improper motive, their exercise of the power cannot be challenged in the courts – and their reasons for acting as they did are, accordingly, immaterial. This is one of the grounds for the rule that trustees are not obliged to disclose to beneficiaries their reasons for exercising a discretionary power. Another ground for this rule is that it would not be for the good of the beneficiaries as a whole, and yet another that it might make the lives of trustees intolerable should such an obligation rest upon them: In re Beloved Wilkes’s Charity; In re Gresham Life Assurance Society, Ex parte Penney. Nothing would be more likely to embitter family feelings and the relationship between the trustees and members of the family, were trustees obliged to state their reasons for the exercise of the powers entrusted to them. It might indeed well be difficult to persuade any persons to act as trustees were a duty to disclose their reasons, with all the embarrassment, arguments and quarrels that might ensue, added to their present not inconsiderable burdens.”
[23]The reserved judgments from which I have quoted above were delivered on 3rd November 1964. The Court of Appeal’s order was approved on 26th November. It is impossible to tell from the report whether further argument was heard as to the application of the principles in those judgments to the categories of documents in respect of which disclosure has been sought. The order records that the trustees were to be exempt from disclosure of four classes of documents, namely:(1) the agenda of the meetings of the trustees of the settlement,(2) correspondence passing between the individuals for the time being holding office as trustees of or appointors under the settlement,(3) correspondence passing between the trustees and appointors or any of them on the one hand and the beneficiaries under the settlement on the other hand,(4) minutes of the meetings of trustees or appointors and other documents disclosing the deliberations of the trustees as to the manner in which they should exercise the discretionary powers conferred upon them by clause 2 of the settlement or disclosing the reasons for any particular exercise of such powers or the materials upon which such reasons were or might have been based:” (my underlining).[24]There has been a long-standing debate whether wish letters fall within any of the excluded categories identified in the Court of Appeal’s order, and in particular within the last part of category 4 which I have underlined above. I shall refer to them as the Londonderry excluded categories. For my part, I doubt whether any of the categories were framed with wish letters in mind. Of greater significance however is the principle which I consider clearly emerges from the judgments, namely that the process of the exercise of discretionary dispositive powers by trustees is inherently confidential, and that this confidentiality exists for the benefit of beneficiaries rather than merely for the protection of the trustees. I shall refer to it as the Londonderry principle. Although most clearly enunciated by Danckwerts LJ in the passage between 935G and 936C, it was approved by Salmon LJ and is sufficiently reflected, albeit in different language, in the passages from the judgment of Harman LJ which I have quoted above. That principle is plainly part of the ratio decidendi.[25]Re Londonderry’s Settlement was followed by a majority of the Court of Appeal of New South Wales in Hartigan Nominees Pty Ltd v. Rydge (1992) 29 NSWLR 405. The case is however memorable as much if not more for the respects in which the judgments departed from the Londonderry analysis. Hartigan Nominees has close parallels with the present case. It raised, fairly and squarely, the question whether a wish letter was disclosable to beneficiaries. Furthermore, precisely as in the present case, the letter was written by a de facto rather than a de jure settlor: see per Sheller JA at page 446F. Neither the trial judge nor the Court of Appeal looked at the wish letter. In the Court of Appeal, this was because to do so would, in the view of the court, have been to admit fresh evidence going beyond that considered by the court below.[26]The majority of Mahoney JA and Sheller JA decided, reversing the trial judge, that disclosure should not be ordered. Both were of the view, on the available evidence, that the wish letter had been communicated in circumstances of confidence, albeit arising by implication rather than expressly, as between settlor and trustees: see pages 437A to B and 446G. The view of Mahoney JA was that Re Londonderry was correct and should be followed, that a claim to disclosure depended upon the assertion of the proprietary right, but that the confidentiality inherent in a discretionary family trust should prevail. The heart of his reasoning may be found in the following two paragraphs, on page 436:
“I would, for myself, see the matter of confidentiality as being of particular significance in discretionary trusts of the present kind. In deciding questions of disclosure, it is important in my opinion to have regard to the essential nature of such discretionary trusts. Such a trust is not a mere commercial document in which the public may have an interest. It is a private transaction, a disposition by the settlor of his own property, ordinarily voluntarily, in the manner which he is entitled to choose. Special cases apart, it is proper that his wishes and his privacy be respected. In a discretionary trust of this kind, the settlor has placed confidence in his trustee and has on that basis transferred property to him. It has, I think, been the purpose of the law to respect that trust. It depends upon confidence and confidentiality. The settlor seeks to have the trustee resolve, without unnecessary abrasion, the conflicting claims of persons in an area, the family, where disputes are apt to be bruising. In cases of this kind, if a settlor’s wishes cannot be dealt with in confidence, the purpose of the trust may be defeated.”
[27]Sheller JA expressed dissatisfaction with the supposed proprietary basis of a beneficiary’s entitlement to disclosure of trust documents, not least because of the anomalous position of discretionary objects. Nonetheless he readily accepted the analysis in Re Londonderry of the need to preserve confidentiality in the trustees’ exercise of dispositive discretionary powers. But he excluded wish letters from the categories of documents the disclosure of which might detract from that principle, in the following passage, at page 445:
“With respect to the conclusions in Re Londondery’s Settlement I think material upon which reasons were or might have been based cannot generally be withheld, unless it reveals the reasons themselves or the reasoning process. In Jacobs’ Law of Trusts in Australia 5th ed (1986) par 1716 at 393, referring to the Londonderry’s Settlment case the learned authors say: “… Nevertheless, this case is clear authority that beneficiaries have no right to see documents private to the trustees which may evidence the reasons why the trustees have made their decisions.”
This statement, in my opinion, accurately describes the nature of documents access to which by beneficiaries is denied. It is into this class that the appellants seek to press Sir Norman Rydge’s memorandum. By contrast it should be observed that there could be no debate that the trustees are bound to disclose the deed of trust, the trust accounts and as Harman LJ acknowledged (at 932), counsel’s advice, ante litem motam, to trustees as to their rights and duties. Such documents are no doubt referred to by trustees from time to time when they come to exercise a discretionary power, but, though they will influence the trustees, indeed may be decisive, they do not themselves reveal motives, reasons or the process of reasoning. In my opinion that is the decisive distinction. Moreover I do not think that the class of documents to which beneficiaries are denied access should be extended beyond those the non-disclosure of which is necessary to preserve the trustees’ right not to disclose their reasons for exercising discretionary powers and their reasoning processes. A memorandum in which the settlor indicates his preferences and wishes as to what the trustees should do does not obviously fall within the general category of documents which the English Court of Appeal need not be disclosed. Because of the nature of the trust, which imposes on the trustees a duty to exercise their own discretion, I do not think that Sir Norman Rydge’s memorandum evidences the reasons why the trustees have made their decisions any more than the deed itself does. It stands in contrast to minutes and agenda papers of trustees’ meetings or communications between them.” “… Nevertheless, this case is clear authority that beneficiaries have no right to see documents private to the trustees which may evidence the reasons why the trustees have made their decisions.”[28]Nonetheless, Sheller JA refused disclosure, on the simple ground that Sir Norman Rydge had by implication imposed on the trustees an obligation to keep his memorandum of wishes confidential from the beneficiaries, by which the trustees were bound in the absence of any sufficient countervailing circumstances, see pages 446G to 447B.[29]Kirby P was trenchantly of the view that the memorandum of wishes should be disclosed. In a magisterial judgment, which deals fully and sympathetically with the arguments to the contrary, he concluded first (like Sheller JA) that proprietary right was an unsatisfactory basis for a claim to disclosure, and secondly that, even if the Londonderry principle were applied, the memorandum of wishes would fall outside the excluded categories because, as he put it, at page 419:
“… the memorandum of wishes was an essential component of, or companion to, the trust deed itself. It provided an understanding of the purposes of the establishment of the trust by the settlor at the instigation of the benefactor. Thus, no one would dispute that the beneficiary could have access to the trust deed itself. In my view, it is really enough to dispose of this case to say that that trust deed, being understood in the light of the memorandum of wishes, is effectively to be taken to be supplemented by it. Then to deny the beneficiaries affected access to such a central document is undoubtedly to deny them access to one of the “trust documents”
. Whatever the definition finally settled for “trust documents”, a memorandum of wishes such as that executed here falls within the category of “trust document”. It was not created by the trustees. It is not an insight to the mind of the trustees. It is an indication of the wishes of the instigator of the trust to which the trustees are themselves attending.”[30]Thereafter, Kirby P’s reasoning preferred wholly to discard Re Londonderry, together with cases such as Re Beloved Wilkes’s Charity which preceded and underpinned it. In his view, those cases were the product of an outdated benevolent paternalism, whereas:
“Australian society accepts a generally greater level of accountability than has, until now, been accepted by the law of England.”
In his view:
“Access should not be limited to documents in which a proprietary right may be established. Such rights may be sufficient: but they are not necessary to a right of access which the courts will enforce to uphold the cestui que trust’s entitlement to a reasonable assurance of the manifest integrity of the administration of the trust by the trustees.”
[31]Kirby P was prepared to acknowledge that an express imposition by the settlor of an obligation of confidence in relation to a wish letter might prevail. Finally in his view once trustees state that they have taken account of a wish letter in making their decisions, they thereby put their reasoning sufficiently into play for any principle which might have otherwise entitled them to resist disclosure to be disapplied.[32]Before leaving Hartigan Nominees, I should note that it was common ground before me that, whatever the position may have been in 1992, England should not now be regarded as lagging behind Australia so far as concerns society’s expectations as to accountability. In my judgment Kirby P’s analysis stands or falls upon whether it is logical and consistent with legal principle, rather than upon any supposed differences in the social background within which the courts of different countries administer trusts in accordance with common law and equity. It would in my view be most unfortunate if the broad consistency with which the courts, practitioners and academics of such countries presently interpret and apply the law relating to trusts were thereby to be fractured. It is partly for that reason that this judgment is concerned as much with decisions abroad as with decisions of the English courts.[33]An unsuccessful attempt was made to distinguish the Londonderry principle in relation to the trusts of an employees’ contributory pension scheme in Wilson v Law Debenture Trust Corp plc [1995] 2 All ER 337. Rattee J upheld the trustees’ refusal to give reasons for a discretionary decision, on what he described as well established principles of trust law. He added:
“ Moreover, there is in my judgment sound reason for the parties to the trust instrument in the present case having conferred such a discretion on the trustee in the hope of minimising the potential for dispute and possibly litigation by various groups of employees and ex-employees, dissatisfied by an exercise of the trustee’s quantification of the amount to be transferred in a situation such as the present.”
[34]Re Londonderry and Hartigan Nominees were both considered by the Jersey Royal Court (Samedi Division) in Re Rabaiotti’s Settlement [2000] WTLR 953. John Rabaiotti had been ordered in English matrimonial proceedings to disclose (inter alia) all letters of wishes, current and past in relation to any trusts of which he was a beneficiary. The trustees of four relevant settlements (only two of which were governed by Jersey law) applied for directions to the Jersey court as to whether they should disclose relevant documents to him, including letters of wishes. The court held that, generally, letters of wishes should not be disclosed, and that it was for any beneficiary seeking disclosure to make out a case to the contrary. In that case disclosure was ordered to be made to John (thereby triggering his obligation to disclose to the English court) because the Jersey court feared that, otherwise, the English court might conclude that his interest in the four settlements was greater than it was in fact.[35]Leaving aside those special facts, the case is of importance for its statement of the general position in relation to wish letters. Rejecting an argument that the court should follow the approach of Kirby P in Hartigan Nominees, i.e. that a beneficiary should generally be entitled to know the reasons for a trustee’s decision, the Deputy Bailiff continued as page 967:
“It seems to us important that discussion should be uninhibited by fear of publication. In order to fulfil their duties properly, the trustees may need to consider weaknesses of character of a beneficiary, the relationship between different beneficiaries, and many other sensitive matters. One can readily understand that, should such personal information about beneficiaries be freely available to any individual beneficiary who asks for it, it may lead to difficulties. Furthermore, the fact that the views and reasoning of trustees on such sensitive matters could be made available to any disaffected beneficiary would, the Court believes, inhibit full and free discussion, and be likely to lead to ill-feeling and to fruitless litigation.”
The Deputy Bailiff gave detailed reasons for the Court’s conclusion that wish letters generally fell within the terms of the Londonderry excluded categories. The reasoning included this passage at page 968:
“… in general terms, the contents of the letter of wishes will undoubtedly form an important part of the trustees’ consideration of the exercise of their powers. We are quite satisfied that a letter of wishes is a document which is closely related to the decision-making process and to the reasons for a decision, even where the trustees decide to depart from the letter. However, we disagree with Kirby P in Hartigan that it is therefore a document which is to be treated as being ancillary to the trust deed. It is an informal document which the trustees are free to ignore. It is merely an expression of the settlor’s wishes.”
He concluded:
“We are conscious that the wording used to describe the relevant categories of documents in Londonderry should not be construed as a statute. The wording is simply taken from an order made in a particular case. Although we hold that the letter of wishes is covered by the wording in Londonderry, that is not necessary to our decision. We would rest our decision additionally upon the general principle that a trustee does not have to disclose the reasons for the exercise of a discretion and upon the justification for that principle as given in Londonderry and In Re a Settlement [1994] JLR 139. We hold that to require disclosure of a letter of wishes would be likely in practice to undermine the immunity from the provision of reasons and to lead to just the sort of problems which the immunity was designed to avoid.”
[36]The Court also approved the decision of the majority in Hartigan Nominees to respect the implied confidentiality requested by the settlor. Nonetheless, their conclusion that the Court retained a discretion (quite separate from the process of discovery in ordinary litigation) to order disclosure notwithstanding confidentiality was based upon what the Deputy Bailiff described as the first principle that:
“A court of equity has a general supervisory jurisdiction over trusts. It is there, amongst other reasons, to ensure that the trustees are accountable to the beneficiaries on whose behalf they hold the assets. Indeed, trustees may surrender their discretion to the court. In our judgement, it would be inconsistent with the general position of the Court if it did not have the power to order disclosure of a letter of wishes or other document, which did not have to be disclosed on Londonderry principles, where it was satisfied that it was essential to do so. The position is similar to that concerning trust documents, save that it is the reverse situation. One starts with a strong presumption that a letter of wishes or other document falling within the Londonderry exceptions, does not have to be disclosed to a beneficiary. The burden lies on the beneficiary who requests the court to order the disclosure of such a document against the wishes of the trustees. Nevertheless, there is power in the Court to do so if the Court is satisfied that there are good grounds for ordering disclosure in a particular case.”
[37]In Rabaiotti, the Court also considered the effect upon two of the four settlements under review of provisions in Article 25 of the 1984 Jersey Trust Law, but these made no difference to the outcome.[38]Both Re Londonderry and Hartigan Nominees were reviewed by the Privy Council in Schmidt v. Rosewood Trust Ltd [2003] 2 AC 709. In that case, the documents of which disclosure was sought were trust accounts and documentary information about the trust assets to which it was not, nor could be, suggested that a Re Londonderry basis of exclusion from disclosure applied. Rather, the point was taken that, assuming that the basis of a beneficiary’s claim to disclosure was proprietary in nature, mere discretionary objects could have no such entitlement. Basing itself on the analysis of the relevant majority in Hartigan Nominees, the Privy Council concluded that the true basis of a beneficiary’s claim to production of documents by trustees was that it was an aspect of the court’s inherent jurisdiction to supervise and if appropriate to intervene in the administration of a trust, including a discretionary trust. Thus the particular nature of the beneficiary’s interest was in principle irrelevant, and it was no answer to the claim of a mere object to have the trust duly administered that he was not a beneficiary in the full proprietary sense. At paragraph 54, Lord Walker went one stage further, by stating:
“ It will be observed that Kirby P said that for an applicant to have a proprietary right might be sufficient, but was not necessary. In the Board’s view it is neither sufficient nor necessary. Since In re Cowin 33 Ch D 179 well over a century ago the court has made clear that there may be circumstances (especially of confidentiality) in which even a vested and transmissible beneficial interest is not a sufficient basis for requiring disclosure of trust documents; and In re Londonderry’s Settlement and more recent cases have begun to work out in some detail the way in which the court should exercise its discretion in such cases. There are three such areas in which the court may have to form a discretionary judgment: whether a discretionary object (or some other beneficiary with only a remote or wholly defeasible interest) should be granted relief at all; what classes of documents should be disclosed, either completely or in a redacted form; and what safeguards should be imposed (whether by undertakings to the court, arrangements for professional inspection, or otherwise) to limit the use which may be made of documents or information disclosed under the order of the court.”
[39]Later, at paragraph 67 Lord Walker concluded:
“However, the recent cases also confirm … 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 to different beneficiaries, trustees themselves, and third parties. Disclosure may have to be limited and safeguards may have to be put in place.”
[40]Apart from the conclusion that the grant or withholding of disclosure sought by a beneficiary is essentially a discretionary matter for the court, (rather than a matter of right depending upon “bright dividing lines” or rigid categories of excluded documents), Lord Walker expressed no hint of disapproval at the manner in which the Court of Appeal explained in Re Londonderry the principled basis for refusing inspection on grounds of confidentiality. On the contrary, he described the need to protect confidentiality as “one of the most important limitations on the right to disclosure of trust documents” (in paragraph 49) and commended Re Londonderry as an important case in the development of the principles regulating the exercise of discretion, in the passage in paragraph 54 which I have quoted above.[41]It seems to me inconceivable that the Privy Council can have approved of Kirby P’s wholesale attack on the Re Londonderry approach to the preservation of confidentiality. Lord Walker’s approval of the approach of Kirby P in Hartigan Nominees was limited to that part of his analysis with which Sheller JA concurred: see paragraph 61. Quite apart from the difficulty that I am bound by a decision of the Court of Appeal, it does not seem to me that Schmidt v. Rosewood justifies a departure from what I have described as the Londonderry principle. The obviously non-confidential nature of the documents of which disclosure was sought in Schmidt v Rosewood means that the statements in Lord Walker’s judgment about the importance of confidentiality are, however persuasive, obiter dicta.[42]I was referred to two decisions relating to wish letters which followed and applied Schmidt v. Rosewood. The first was Foreman & ors v. Kingstone & ors [2005] WTLR 823, a decision of the High Court of New Zealand. Potter J concluded, at paragraph 89, that:
“… as a matter of principle, the entitlement of beneficiaries to disclosure of trust documents pursuant to the trustees’ fundamental obligation to be accountable to beneficiaries, must be measured against another fundamental principle that the autonomy of trustees in the exercise of their discretions under the trust instrument must be ensured. Hence, trustees are not obliged to disclose to beneficiaries their reasons for exercising their discretionary power (Re Londonderry Settlement).”
As for the tension between the rights of beneficiaries and the personal desire of a settlor for privacy, she reached an altogether different conclusion, at paragraph 93:
“But when a trust is established, obligations and correlative rights are created. Otherwise there is no trust. The fundamental duty of the trustees is to be accountable to all beneficiaries. That cannot be compromised by a settlor’s desire for confidentiality in relation to his and the trust’s personal and financial affairs unless there exist exceptional circumstances that outweigh the rights of the beneficiaries to be informed.”
[43]In relation to wish letters, Potter J expressed the tentative conclusion, at paragraph 101, that they should prima facie be disclosed to beneficiaries “in the absence of a substantiated claim for confidentiality by the trustees”.[44]In Countess Bathurst v. Kleinwort Benson (Channel Islands) Trustees Ltd & ors [2007] WTLR 959, a claim to disclosure of (inter alia) wish letters was made by the claimant beneficiary against her trustees in the Royal Court of Guernsey. The Lieutenant Bailiff disagreed with the conclusion of the Jersey Court in Rabaiotti that wish letters fell prima facie within the Londonderry excluded categories, preferring the contrary view of Kirby P and Sheller JA in Hartigan Nominees because, as he put it at paragraph 117:
“… a letter of wishes may or may not have formed the basis, or part of the basis, on which a decision was made, but the letter itself would not, as I see it, reveal that fact.”
[45]I turn finally to the views of distinguished commentators and editors of text books. In his article “The Trustees’ Duty to Provide Information to Beneficiaries” [2004] PCB 23, Sir Gavin Lightman firmly endorsed what he described as Kirby P’s “strong plea for greater transparency to ensure that the trustees do their duty and are accountable” in Hartigan Nominees. He said, at page 33:
“The reasoning of Kirby P (now a judge of the High Court of Australia) is in my view compelling that disclosure to beneficiaries of confidential letters of wishes and trustees’ deliberations should not be regarded as immune from disclosure, when disclosure is necessary to enable beneficiaries to monitor performance of their duties by trustees and ensure that they are fully and properly informed. A balancing exercise is called for involving the examination of the best interests of the beneficiaries and the views of the trustees must be a relevant consideration. The views of a protector (if any) appointed by the settlor to protect the interests of the beneficiaries should likewise be relevant. But whether the confidence intended by the settlor (or desired by the trustees) should be broken must depend on the merits of the application. If a settlor in arranging his affairs has recourse to a settlement and a confidential letter or indeed a confidential oral communication of wishes, he runs the risk that the due administration of the settlement, the accountability and the safeguarding of the interests of the beneficiaries may require the confidence to be broken overridden by those other considerations. Trustees have no right of confidence or privacy as such: it should only be claimed and respected when the need for it outweighs countervailing considerations.”
[46]In the 17th edition of Underhill and Hayton’s Law Relating to Trusts and Trustees, at paragraph 60.51, emphasis is placed on the value of wish letters to beneficiaries in enabling them to monitor the performance by the trustees of their duties:
“Since disclosure of information to beneficiaries is now based on the core accountability of trustees to them, this letter is a key document that needs to be available for inspection by beneficiaries if they are going to be in a position where it becomes possible for them to bring the trustees properly to account. If the beneficiaries cannot ascertain the purposes and expectations of the settlor they cannot possibly allege that the trustees did not responsibly exercise their discretion for furthering the purposes and expectations of the settlor, but exercised their discretion arbitrarily or contrary to the settlor’s purposes and expectations or irrationally, failing to take account of relevant factors or taking account of irrelevant factors. Thus for the beneficiaries to have a meaningful right to make the trustees account for the exercise of their discretions, they will need to see the key letter of wishes as well as the trust instrument.”
[47]With respect, that analysis appears to assume that, because trustees are accountable to their beneficiaries, the beneficiaries have a right to investigate the rationality or correctness of the trustees’ discretionary decision-making rather than its honesty or fairness. English authority has, between 1851 and 1994, consistently denied them this right, save where the trustees choose to reveal their reasons.[48]A detailed discussion of the issue is provided by the editors of the 18th edition of Lewin on Trusts, at paragraphs 23-52 to 23-61 in which, notwithstanding the absence of English authority directly in point, their general conclusion is that:
“The judicial trend is therefore towards disclosure. But it should not be assumed that disclosure will in future be automatic in all cases.”
There is, at paragraph 23-56 a valuable analysis of the nature of the confidentiality that may reasonably be implied as arising when a settlor sends a wish letter to trustees without imposing express terms as to confidentiality: “It does not necessarily follow that the settlor’s letter of wishes is subject to an absolute or purportedly absolute obligation of confidentiality so that the trustees are simply required not (without the settlor’s consent), to disclose it to any beneficiary in any circumstances. In our view, subject to any special terms in the letter of wishes, the settlor should normally be taken as having expressed his wishes to the trustees subject to a more limited duty of confidentiality to him under which they are not to disclose the letter without his consent unless they consider disclosure to be in the interests of the sound administration of the trust and operation of the powers and discretions which the settlor has conferred on the trustees. In practice, settlors’ letters of wishes are not infrequently, in the context of non-litigious family trusts, made available by trustees to beneficiaries subject to appropriate confidentiality undertakings and, if proper, redaction. There is no general perception that trustees are doing anything wrong in giving disclosure on this basis. Many circumstances arise where it is in the interests of the trust and its beneficiaries for there to be a partial or even total confidential disclosure of a settlor’s letter of wishes to a beneficiary seeking disclosure. It should not be lightly assumed that the settlor intended to impose an absolute veto on disclosure without his consent. And, since family discretionary trusts usually have a very long potential duration, the settlor may be unavailable to give consent by the time disclosure is sought, since he may lack capacity, or may have died leaving his estate in the hands of unco-operative personal representatives”.[49]The discussion in Lewin provides support for the view that wish letters are not generally to be regarded as falling within the literal terms of the Londonderry excluded classes, and for the view that the court has in any event a discretion to override even the express imposition by a settlor of an absolute duty of confidence on his trustees, with regard to the contents of a wish letter.[50]Finally, Lewin offers the thought that the purpose for which a beneficiary seeks disclosure may be material to the question whether the Londonderry principle militates against the provision of disclosure by the trustees or by the court. They contrast a disclosure sought expressly for the basis of investigating the rationality or correctness of the exercise by the trustees of their discretionary powers, where the claim for exemption on the Londonderry principle is strong, with a request for the purpose of an evaluation of the beneficiary’s future expectations under the trust, where it is suggested that the case for refusing disclosure on the Londonderry principle is weak.[51]Leaving aside the special case where the evaluation of the beneficiary’s prospects arises in divorce proceedings to which he or she is a party, which seems to me to be an aspect of the court’s powers to require disclosure for the purpose of resolving issues in litigation, I have difficulty with this aspect of the analysis in Lewin. It seems to me that disclosure sought by a beneficiary for the purpose of evaluating his or her prospective entitlement may too easily, once obtained, be used for the purpose of challenging the subsequent exercise by the trustees of their dispositive discretion on grounds of rationality. Leaving aside the instances where the beneficiary’s future prospects may be relevant to an issue in respect of which he or she is a party to litigation, I consider that the question whether disclosure should be refused, either by trustees or by the court, should be addressed primarily upon an assessment of the objective consequences, rather than by reference to the subjective purpose for which disclosure is alleged to be sought.

CONCLUSIONS

[52]The first question is whether it is either permissible or appropriate in the light of O’Rourke v. Darbishire and Re Londonderry’s Settlement for me to decide at first instance that the basis upon which trustees and the court should approach a request for disclosure of a wish letter (or of any other document in the possession of trustees in their capacity as such) is one calling for the exercise of discretion rather than the adjudication upon a proprietary right. In my judgment it is both permissible and appropriate to answer that question in the affirmative. My review of the authorities demonstrates that there is now virtual unanimity in the relevant common law jurisdictions to that effect. Furthermore, as I have sought to demonstrate, even the Court of Appeal in Re Londonderry itself found the proprietary analysis to be both inconclusive and unsatisfactory, by comparison with the recognition of a clear, principled basis for refusing disclosure even in cases where there appeared to be a prima facie proprietary right to disclosure.[53]On that basis, the second question is whether the Londonderry principle remains good law, at least in England. In my opinion, it is still good law and, in any event, law by which a first instance judge remains bound, unless and until released by some higher judicial or parliamentary authority.[54]At the heart of the Londonderry principle is the unanimous conclusion (most clearly expressed by Danckwerts LJ) that 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. It is in the interests of the beneficiaries because it enables the trustees to make discreet but thorough inquiries as to their competing claims for consideration for benefit without fear or risk that those inquiries will come to the beneficiaries’ knowledge. They may include, for example, inquiries as to the existence of some life-threatening illness of which it is appropriate that the beneficiary in question be kept ignorant. Such confidentiality serves the due administration of family trusts both because it tends to reduce the scope for litigation about the rationality of the exercise by trustees of their discretions, and because it is likely to encourage suitable trustees to accept office, undeterred by a perception that their discretionary deliberations will be subjected to scrutiny by disappointed or hostile beneficiaries, and to potentially expensive litigation in the courts.[55]I recognise the force of the contrary proposition, best enunciated by the editors of Underhill, that the conferral of a general confidentiality upon the exercise by trustees of their discretionary powers may in particular cases reduce the practical extent to which they can be held to account. Trustees undoubtedly are accountable for the exercise of those powers, but it seems to me quite wrong to suppose that the courts have been mindless of the existence of that core principle of accountability, during the period of more than 150 years when the law has been that it is better for confidentiality to be afforded. While Kirby P and those who sympathise with his views may be right in recognising that, in society generally, the principle of fiduciary accountability has gained ground in recent years, it seems to me that this is better described as a process whereby the strict principles whereby a trustee has always been accountable have spread to other areas of society, where the concept of fiduciary obligations by those who hold property or exercise power or authority on behalf of others, or over their affairs, has come to be more generally recognised.[56]Nor can I see any persuasive basis for thinking that the reasoning which led the English courts to think it appropriate in the interests of beneficiaries, and in the administration of trusts, to confer confidentiality on the exercise by family trustees of their discretionary dispositive powers has ceased to hold good. It is not obvious that the potentially disastrous consequences of a resort to civil litigation about the administration of family trust property, in terms of the expenditure of time and cost, are much less of a potential evil than they were in the 19th Century. Nor is there any less need today than there always has been to avoid deterring suitable family trustees from accepting an arduous unpaid office. Of course there is a risk that the conferral of such confidentiality may enable unworthy trustees to use it as a shield for the concealment of their culpable inadequacies, but this risk cannot have been ignored in the 19th century, and now that it is recognised that the general principle of confidentiality is subject to being overridden as a matter of discretion by the court, it may fairly be supposed that the risk has if anything become more rather than less manageable.[57]My reason for concluding that, regardless of my own opinion, I am bound to continue to treat the Londonderry principle as still being good law is simply because it formed part of the ratio of that decision, it has never been overruled, and because, if anything, it received a general endorsement rather than criticism in Schmidt v. Rosewood.[58]I turn therefore to the question whether, and if so in what way, the Londonderry principle applies to wish letters. In that context I am content to limit myself to wish letters arising in the context of family discretionary trusts, rather than employee trusts, pension trusts or other business trusts, leaving for another occasion the manner in which the Londonderry principle is applicable to them. The defining characteristic of a wish letter is that it contains material which the settlor desires that the trustees should take into account when exercising their (usually dispositive) discretionary powers. It is therefore brought into existence for the sole purpose of serving and facilitating an inherently confidential process. It seems to me axiomatic that a document brought into existence for the sole or predominant purpose of being used in furtherance of an inherently confidential process is itself properly to be regarded as confidential, to substantially the same extent and effect as the process which it is intended to serve.[59]There is nothing unusual in such an approach. It is routinely applied in the working out of the principles of legal professional privilege, litigation privilege, and public interest immunity, as well as in the application of the without prejudice principle. The critical difference is that confidence may be overridden by the exercise of the court’s discretion, whereas privilege may not.[60]While in a sense a wish letter is the companion of the trust deed, it by no means follows that it therefore needs or ought to be afforded similar treatment in the hands of the trustees. The trust deed is a document which confers and identifies the trustees’ powers. There is in principle nothing confidential about the existence and precise boundaries of those powers. By contrast, the wish letter, operating exclusively within those boundaries and purely in furtherance of the trustees’ confidential exercise of discretionary powers, may properly be afforded a status of confidentiality which the trust deed itself entirely lacks.[61]Of course, particular wish letters may contain valuable background information relevant (under modern ICS based principles) to the construction of the trust deed itself, but I can see no reason why that possibility should detract from the inherent confidentiality of a wish letter. If a genuine issue as to the construction of a trust deed becomes the subject of litigation, and that issue appears likely to be illuminated by relevant background material evidenced by a wish letter, then the wish letter may become disclosable, regardless of its confidentiality, in accordance with ordinary principles of disclosure in civil litigation.[62]In my judgment, the effect of that analysis is broadly as described by the editors of Lewin at paragraph 23-56, in the passage which I have quoted above, although I do not share their view that the judicial trend is towards disclosure. Generally, the confidence which ordinarily attaches to a wish letter is such that, for the better discharge of their confidential functions, the trustees need not disclose it to beneficiaries merely because they request it unless, in their view, disclosure is in the interests of the sound administration of the trust, and the discharge of their powers and discretions. My only reservation with the analysis in Lewin is that I doubt whether it is appropriate for the trustees to be greatly influenced by the subsequent giving or withholding of consent to disclosure by the settlor. In the absence of special terms, the confidentiality in which a wish letter is enfolded is something given to the trustees for them to use, on a fiduciary basis, in accordance with their best judgment and as to the interests of the beneficiaries and the sound administration of the trust. Once the settlor has completely constituted the trust, and sent his wish letter, it seems to me that the preservation, judicious relaxation or abandonment of that confidence is a matter for the trustees or, in an appropriate case, for the court.[63]Although this may be a matter to be decided on another occasion, I am not persuaded that it is either appropriate or legitimate for a settlor to fetter the trustees’ discretion in that respect, either by the inclusion of special terms as to confidentiality in the wish letter itself or, still less, on any subsequent occasion. In this regard I have not, with respect, been persuaded by what appears to have been the contrary view of the majority in Hartigan Nominees, or by the opinions of those others for whom it appears that the express imposition of an obligation of confidence makes all the difference. Trustees are fiduciaries exclusively for their beneficiaries and should not in my opinion be asked to accept, nor should they without good cause accept, restraints upon their use of relevant information which would prevent disclosure even where, in their view, disclosure was preferable to the continued maintenance of confidence.[64]A simple example suffices to illustrate the point. Suppose that in a wish letter the settlor asserts facts about a beneficiary which, if true, would reduce that person’s suitability to receive benefit. The assertion may be unsubstantiated, and only capable of being checked by inquiry of the beneficiary himself. It may in practice be impossible to make that inquiry if the content and authorship of the assertion in the wish letter is kept confidential.[65]My conclusion that, in general, wish letters fall within the Londonderry principle makes it unnecessary for me to decide whether wish letters fall into any of the Londonderry excluded categories. The categories were chosen by the parties to enable the trustees to sort their particular documents into disclosable and non-disclosable parts, and do not appear to have been formulated with wish letters in mind. It is therefore artificial to apply them to wish letters. But since category (4) was designed in part to protect documents which would tend to disclose the materials upon which the trustees’ reasons might have been based, it may be that, if asked, the Court of Appeal might have put wish letters in a category (5), since they would be an obvious example of such materials.[66]Before applying those principles to the facts of the present case, I shall briefly summarise what I consider to be their practical effect in relation to family discretionary trusts, separately in relation to each of the three stages in which the issue may typically arise. First, trustees should in general regard a wish letter (that is a document from the settlor the sole or predominant purpose of which is or appears to be to assist them in the exercise of their discretionary powers) as invested with a confidentiality designed to be maintained, relaxed, or if necessary abandoned, as they judge best serves the interests of the beneficiaries and the due administration of the trust. This discretion to maintain, relax or abandon confidence arises regardless of a request for disclosure by a beneficiary, and persists regardless of the incapacity, death or change of heart on the part of the settlor.[67]Where a beneficiary makes a request for disclosure, that in my judgment merely triggers an occasion upon which the trustees need to exercise (or reconsider the exercise) of that discretion, giving such weight to the making of and reasons for that request as they think fit. Having made their decision the trustees are not obliged to give reasons for it, any more than in relation to any other exercise of their discretionary powers. In a difficult case the trustees may, as always, seek the directions of the court on the question whether to disclose but, bearing in mind the inevitable cost associated with doing so, the trustees will need to think twice before concluding that the difficulty of the question justifies the expenditure. It is by no means a matter for criticism (of the type levelled against the trustees in this case) that trustees do not either give reasons or apply to the court for directions, if minded not to accede to a beneficiary’s request for disclosure.[68]If application is made to the court by trustees for directions whether to disclose a wish letter, then it is a fundamental principle that full disclosure must be made to the court. It will almost always be necessary to include the wish letter itself in that disclosure to the court. Furthermore the court is unlikely to determine the question of disclosure without joinder of at least the requesting beneficiary, and the court would have to give anxious consideration to the question whether, and if so to what extent, to restrict disclosure of the relevant materials to that beneficiary or his legal advisers, for the purposes of enabling submissions to be made on his behalf, in the same way as occurs in the context of Re Beddoe applications, where the opposite party to the proposed or threatened litigation is a beneficiary of the trust.[69]At the second stage, (i.e. determination of the disclosure issue by the court in proceedings brought solely for that purpose), the matter may be presented, at least in theory, in four different ways. In its simplest form the trustees may seek to surrender their discretion to the court, in which case (if it permits the surrender, which it is not obliged to do), the court is exercising its own discretion afresh, rather than reviewing any negative exercise of discretion by the trustees. Alternatively, the trustees may, without surrendering their discretion, invite the court in effect to bless their refusal. Thirdly the case may be brought by the disappointed beneficiary by way of a challenge to the trustees’ negative exercise of their discretion to disclose. Finally, the beneficiary may seek simply to invoke an original discretion in the court, as part of its jurisdiction in the administration of trusts.[70]The second and third of those types of application involve a review of the trustees’ negative exercise of their discretion to disclose. If the trustees themselves apply, then it is in practice inevitable that they will have to disclose their reasons. If the disappointed beneficiary applies, then it seems to me that the Londonderry principle will entitle the trustees, if they choose to do so, to decline to give reasons, and to defend the challenge upon the basis that, if it be the case, the disappointed beneficiary has disclosed no grounds for impugning either the fairness or the honesty of their decision, their reasoning being off-limits for that purpose.[71]Finally, if the disappointed beneficiary seeks to invoke the court’s administrative jurisdiction, then it will be incumbent upon him to demonstrate, by reference to whatever facts may be available to him, that an occasion has arisen which calls for the interference of the court. A mere refusal to disclose a wish letter, unaccompanied by reasons or evidence of mala fides or unfairness, would not ordinarily justify such intervention. Of course, if the trustees volunteer reasons for their refusal, the court may investigate those reasons, and call for such factual material or further explanation from the trustees as may be thought fit.[72]The third stage, (where disclosure is sought from the court to facilitate the determination of an issue to which the wish letter is alleged to be relevant), gives rise to different considerations, governed by the law and practice as to disclosure in civil proceedings. For those purposes, the relevance of the foregoing detailed analysis of the status of a wish letter is that identified by Danckwerts LJ in Re Londonderry at page 936G, namely that if the document in question does no more than illuminate the trustees’ reasons for the making of a discretionary decision, it may be simply irrelevant, unless the trustees by a partial disclosure of their reasons have put into play the issue as to their rationality. Since the present case is not an example of this third category, I say no more about how the questions of that kind may be in due course be decided.[73]Before leaving this general legal analysis, I emphasise that the application of the Londonderry principle to wish letters in the way in which I have sought to explain them is not to be taken as something akin to a statutory code. The question begins and ends, both for trustees and for the court, a question of discretion, or of the review of the exercise of discretion. There are no fixed rules, and the trustees need not approach the question with any pre-disposition towards disclosure or non-disclosure. All relevant circumstances must be taken into account, and in all cases other than those limited to a strict review of the negative exercise of a discretion, both the trustees and the court have a range of alternative responses, not limited to the black and white question of disclosure or non-disclosure. The responses include all those identified by Lord Walker in Schmidt v. Rosewood at paragraph 67, and may include, in an appropriate case, a private reading of the wish letter by the judge to himself, a process which I think would have been undertaken by the Court of Appeal of New South Wales in Hartigan Nominees, had that avenue not been closed off by the decision of the trial judge in that case not to do so.

DISCLOSURE IN THE PRESENT CASE

[74]The facts relevant to this issue are not contentious and may be briefly stated. The Settlement was made on 12th January 1995 between(1) Reeva Russell Dunning (“Reeva”) as settlor and(2) Basil James Dunning and Robert Charles Ackland (“Robert”) as trustees. The trust property consisted of farmland, cottages, a farmhouse and barns plus shares and some cash.[75]Reeva was Basil’s second wife. Robert was an accountant by profession and a long standing business colleague and friend of Basil. The Settlement was made in connection with divorce proceedings between Basil and Reeva. Although it is common ground that Basil was the de facto settlor, so that the evidence did not explain why, I was provided without objection from the claimants with the following explanation from Mr Barlow QC for the defendant trustees. Some years previously Basil had transferred ownership of the main part of what became the subject matter of the Settlement to Reeva, and it had become common ground in the financial negotiations connected with their divorce that this property should be returned to Basil. He wished it to be settled on trust giving him a life interest rather than being transferred absolutely, so that Reeva was content that he should, in effect, dictate the terms of the settlement of property which would otherwise have become his in any event.[76]By the time the Settlement was made, Basil was in poor health, and had for some time been living with the second defendant Patricia. They later married. It was always Basil’s intention that Patricia should become a beneficiary of the Settlement so as to receive substantial benefit from it upon his death, and that at the same time she should also succeed him as one of the trustees. Nonetheless, for obvious reasons Patricia was not named in the Settlement which Reeva was to make, as a beneficiary or a trustee, but in clause 4 of the Settlement the trustees were given a discretionary power to add beneficiaries. The question whether, in March 1995, Patricia was lawfully added as a beneficiary is the second issue which I have to decide.[77]In February 1995, Basil orally communicated to Robert, by then his co-trustee of the Settlement, his wish that Patricia should be adequately provided for if she survived him, in particular by an appointment to her of a life interest in the income of the trust fund following Basil’s death. The evidence is that he also expressed wishes for “certain other persons to be named as potential beneficiaries of the Settlement”. There was discussion about a wish letter. Basil signed a wish letter on 9th March 1995, on the same day upon which Patricia was appointed an additional trustee, and purportedly added as a beneficiary. I assume that the wish letter was duly delivered by Basil to his co-trustees at that time.[78]Basil died on 27th November 2002. Robert’s evidence is that, before he died, Basil told him that he wanted to change his letter of wishes, but that due to deteriorating health he did not get round to doing so. Robert infers that the March 1995 wish letter did not accurately represent Basil’s wishes at the date of his death.[79]The beneficiaries named in the Settlement were Basil himself, (defined as the Principal Beneficiary), his children and remoter issue, and such other persons as might be added under clause 4 of the Settlement. The claimants are three of Basil’s four children by his first marriage. He had no children by his second or third marriages. His fourth child is aware of but has taken no part in these proceedings. His third wife Patricia had children by an earlier marriage. There is evidence which the third claimant does not challenge that he and Basil were estranged by the time of Basil’s death.[80]Clause 7 of the Settlement confers on the trustees wide discretionary powers of appointment of the capital and income of the Trust Fund (as defined) among the beneficiaries. Clause 8 provides that, in default of appointment, the income of the Trust Fund is to be paid to Basil for life, and subject thereto both capital and income are to be held on trust for the first claimant as to 70% and for the second claimant as to 30%. The first and second claimants are default beneficiaries. The third claimant is a discretionary object.[81]None of the claimants were made aware of the existence of the Settlement or (therefore) of their status as beneficiaries under it, until January 2005 when , after correspondence between solicitors about Basil’s estate, a letter from Robert as trustee addressed to the third claimant was forwarded to his solicitors advising him that:
“you are an object of a mere power of advancement contained in a Trust Deed established on 12th January 1995 of which I am one of the trustees. As a mere object you have no entitlement under the Trust”
. He was further informed, as a person with a remote interest in the Trust Fund, that he had no entitlement to information about the trust, and that disclosure of such information might involve the trustees in breach of trust.[82]In October 2005 the claimants received copies of the Settlement itself, and were told that a wish letter existed. The trustees’ response to a request for disclosure was, in February 2006, that it contained confidential information, that its disclosure could lead to family discord, that the third claimant had no entitlement to disclosure, and that after careful deliberation, and with the benefit of legal advice, the trustees had decided not to exercise their discretion by disclosing the wish letter. Conscious that they had no duty to give reasons, they stated only:
“that they have reasonable grounds to believe that provision of the letter of wishes to your clients would not be in the best interests of the beneficiaries as a whole and may in turn be prejudicial to the duty of the trustees to discharge their obligations under the trust.”
The trustees made clear through their solicitors that the wish letter was a key document which the trustees would have to take into account when exercising their discretion under the trust instrument.[83]Impasse as to disclosure having thus been reached, these proceedings were issued in April 2007. In their evidence, the trustees made it clear that Basil’s expression of his wishes as to the exercise of dispositive discretion under the Settlement was not limited to a written presentation in the March 1995 wish letter, but included oral expressions of his wishes. While not surrendering their discretion, the Trustees have made it clear both in evidence and submissions that they will abide by any directions which the court makes as to disclosure. In anticipation of the possibility that disclosure might be ordered, or that the court might wish to read the wish letter and understand the oral expressions of wishes privately for the purpose of deciding whether to order disclosure, the trustees have prepared a witness statement as to the oral expressions and included both it and a copy of the March 1995 wish letter in a sealed envelope.[84]Meanwhile, on 2nd January 2008 the trustees stated to the claimants through their respective solicitors that:
“It has always been the Trustees’ intention to distribute the fund when the land has been sold and the value of the charge fully realised. (Given the family history and acrimony surrounding the Settlement, the Trustees intend to seek the Court’s sanction for any distributions made in respect of the monies realised from the development of the land at East Anton.)”
I was told by counsel that the sale of the relevant land is only being held up by a desire to obtain planning permission for development, which is believed to be likely to be forthcoming before long, so that the final distribution of the subject matter of the Settlement and consequential application for the Court’s sanction will, or should, be not long delayed.[85]For the purpose of applying the relevant legal principles to the facts of the present case, I shall treat the claimants’ application as including both a challenge to the negative exercise of the trustees’ discretion whether to disclose the wish letter (and oral expressions of wishes), and an invocation of the Court’s original jurisdiction to order such disclosure for the better administration of the trusts of the Settlement.[86]As to the first, it is evident that the defendant trustees have on advice directed themselves correctly as to the absence of any legal right to disclosure in the claimants, the existence of discretion in the trustees to provide or withhold disclosure, and the governing principle that the discretion must be exercised having regard to the best interests of the beneficiaries and the due administration of the trust. Their view that the wish letter is prima facie confidential is correct, for reasons for which I have given in detail, regardless of the precise content of the wish letter itself.[87]Beyond a general statement as to the existence and purpose of that discretion, the trustees have said that, in their view, the disclosure of the wish letter would be divisive, and would lead to family discord. The trustees have therefore not remained entirely silent as to their reasons for declining to disclose, with the consequence that the court is not in my judgment prohibited from an examination of the rationality of the reasons put forward, by reference if necessary to the contents of the wish letter itself. Subject to that potential line of investigation, there is nothing else in the evidence, or in the submissions of Mr Brisby QC for the claimants, that gives any reason for the court to suppose that the decision not to disclose was otherwise than honest, fair and, for that matter, rational.[88]As to the invocation of the court’s original jurisdiction to order disclosure, there is in my judgment nothing in those materials to suggest that the trusts of this settlement stand in need of administration in any respect which would be illuminated by the disclosure of the wish letter to the claimants. It is true that there is a pending claim to avoid the March 1995 appointment of Patricia as a beneficiary on the grounds of an alleged breach of the self dealing rule, but counsel have been at pains on both sides to emphasise that, in their view, that aspect of the administration of the trust fund is wholly unlikely to be affected, one way or the other, by the disclosure or non-disclosure of the wish letter.[89]Mr Brisby QC for the claimants submitted that the trustees have demonstrated a wrong-headed and unfair tight-fistedness with regard to the disclosure generally of information about the Settlement to the claimants, for example by waiting until its tenth anniversary before even communicating its existence to them. The purpose of his submission was to persuade me that the trustees have acquired a track record with regard to disclosure sufficient to justify disclosure of the wish letter as an appropriate aspect of the on-going administration of the trust. I reject that submission. In my judgment the question whether the trustees may have had good reason for the attitude which they adopted prior to the date when the question as to disclosure of the wish letter itself became contentious has not been fully or fairly investigated. Furthermore, I consider that the question whether the wish letter itself should be disclosed is not significantly impacted upon by issues as to whether some other aspect of the process whereby disclosure has been made about the affairs of the Settlement to the claimants is open to significant criticism.[90]The fact, however, that it now appears that the trustees propose to make no further significant exercise of their dispositive powers before, in the reasonably near future, returning to court for the sanction of a proposed distribution of the entirely of the trust fund is in my judgment of real significance to the question whether disclosure should be ordered now. Mr Barlow readily acknowledged in response to my inquiry that, if the trustees were to seek sanction for any significant further and final discretionary distributions, it would be necessary then for the trustees to make full disclosure to the court including an explanation of their reasons. Having regard to their view that the wish letter is “a key document which the trustees must take into account” for that purpose, it will have to form part of that disclosure. Furthermore, he conceded that the claimants would be necessary parties to any application for sanction, so that the question whether some form of disclosure of the wish letter to them or to their legal advisers in connection with that application would in due course have to be resolved by the application of Re Beddoe principles. Those processes will therefore have to be undertaken as an aspect of the due administration of the trust, on the trustees’ own application in due course.[91]It is superficially tempting therefore to treat the present application as premature, and simply to defer the question of disclosure until what appears now to be an occasion on which it will in any event have to be decided, while perhaps requiring an undertaking from the trustees to make no substantial discretionary distributions or appointments in the meantime.[92]But the question of disclosure has already been very fully argued, no doubt at substantial cost, and I would regard it as an unpardonable waste of time and money if it were simply deferred for re-litigation (possibly before a different judge) at an unspecified future date, if without any adverse consequences for the beneficiaries or for the administration of the trust, the question can be addressed now. Furthermore, if the question of disclosure is deferred until the hearing of an application to sanction, that may of itself cause delay in the final distribution of the trust fund, (while the consequences of any disclosure then ordered were addressed by the claimants), which would be avoided if the question is grappled with now.[93]There are however two differences between the issue as it is presented today and the issue as it would be likely to present itself on an application for sanction of a proposed final distribution of the trust fund in due course. The first is that the trustees have yet to formulate a decision how to distribute the fund. The task of the court in deciding whether or not to sanction a particular proposed distribution might require an attitude towards the disclosure of the wish letter which is tempered by the nature of the proposal. Secondly, although the trustees appear to have committed themselves in advance to providing the court with full reasons for the proposed final distribution, once it has been formulated, they have, necessarily, yet to formulate those reasons, and until they do they remain at least in principle entitled to the protection from investigation and (perhaps) harassment by beneficiaries suspicious of the outcome, while they carry out that difficult task.[94]Considerations of cost and delay also need to be balanced against the risks of discord and division in the family which constitute the trustees’ present grounds for refusing disclosure. Furthermore, since the assertion of those grounds constitutes a partial waiver by the trustees of their immunity from having to give reasons for their refusal, the contents of the wish letter will be likely to assist the court in an assessment whether those grounds withstand a rationality test.[95]I have concluded that I ought therefore to read the contents of the sealed envelope, and have done so. The possibility that this decision may be the subject of an appeal by the trustees, which would be nugatory if the contents of the wish letter and evidence as to oral expression of wishes were immediately disclosed, precludes me from giving reasons for the conclusion to which I have come by reference to the detailed contents of the envelope. The rest of this part of this judgment is affected by that inhibition.[96]In my judgment the contents of the sealed envelope do not justify the view that the reasons given by the trustees for refusing disclosure were irrational, or anything other than a proper exercise of their discretion at the time of that refusal, regardless whether other persons, or even the court, might have come to a different conclusion. Their decision on the stated grounds was well within the range of reasonable and rational decisions which trustees might make, faced with that discretionary question. If follows that, to the extent that this case has been based upon a challenge to the exercise of their own discretion by the trustees, it fails.[97]Nor would I regard the contents of the sealed envelope as giving rise to any reason for the court to take upon itself that aspect of the administration of the trust by ordering disclosure, were it not for the clearly stated intention of the trustees to seek the court’s sanction in due course for their proposed final distribution of the fund, once its detail has been formulated. In my judgment the understandable desire by one or more of the claimants to inform themselves as to their prospects of future benefit does not justify the court intervening by directing disclosure, in face of the trustees’ reasonable views as to the potentially adverse consequences that disclosure might cause. In that context it seems to me that the trustees are likely to know much more than the court about the present state of relations within the family, and about the effect which disclosure of the contents of the sealed envelope might have upon them.[98]Nonetheless, it seems to me inevitable, once the trustees do approach the court for sanction of a proposed scheme of distribution, that the contents of the sealed envelope will be relevant to the court’s appraisal of the scheme and, in that special context, the risk of family division occasioned by disclosure would then clearly be outweighed by the requirement to give the claimants as potential beneficiaries a proper opportunity to address the court on the question of sanction, in full knowledge of the content of the materials to which the trustees will by then have paid careful regard. In that context the trustees will necessarily have surrendered any form of confidentiality protection against a full disclosure and examination of their reasoning, purely by seeking the court’s sanction. On that occasion the Londonderry principle will therefore largely have been displaced.[99]I bear in mind that disclosure now rather than then will accelerate the time at which the contents of the wish letter may cause family discord, and that this will happen at the very time when the trustees are preparing to formulate their scheme of distribution. But I regard these factors as outweighed by the risks of increased cost and delay which will arise by deferring the disclosure issue for possible re-litigation when their scheme comes to the court for sanction.[100]The terms of the wish letter and other contents of the sealed envelope are such that it seems to me wholly unlikely that the question whether or not it is appropriate to require disclosure of the wish letter to the claimants on the trustees’ application to sanction a scheme of distribution will be affected by the detailed contents of the proposed scheme. It will either conform with or depart from the wish letter (and associated oral expression of wishes) to a large or small extent. In either case those materials will have been an important part of the trustees’ decision making process, as they have already stated, and therefore an equally important part of the necessary review of that process which must precede any sanction of the scheme by the court.[101]I therefore propose to order disclosure as sought by the claimants. I make it clear that, but for the trustees’ stated intention to seek sanction for any future scheme of distribution, I would have upheld their refusal to disclose it. The possible consequences upon the disclosure issue of the trustees’ decision in due course to seek sanction for any proposed scheme of distribution have already been the subject of submissions by counsel. Nonetheless it seems to me right, since I have dismissed the challenge to the rationality of the trustees’ own contrary decision, to give them the opportunity to decide whether to persist with that intention, at the cost of disclosure of that which they, reasonably in my judgment, have so far considered should not be disclosed. I will hear submissions as to how that opportunity is to be addressed.

SETTING ASIDE THE MARCH 1995 APPOINTMENTS

[102]The claim to set aside the March 1995 appointments arises out of Patricia’s participation, moments after becoming a trustee of the Settlement, in Deeds of Appointment successively including her among the class of beneficiaries and, immediately thereafter, giving a reversionary interest in the income of the Trust Fund to her, on Basil’s death. It is common ground that, if those appointments involved a breach of the self dealing rule by virtue of Patricia’s participation in them as trustee, then they are voidable at the claimants’ election as of right. The court has no discretion either to relieve Patricia from the consequences of liability to return her receipts, or to relieve the Trust Fund generally from the probably catastrophic consequences of the retrospective loss of the spouse exemption upon Basil’s death as a protection against a substantial charge to inheritance tax, in an amount substantially in excess of the aggregate of the sums so far received by Patricia as a result of the appointment. The remorseless rigour of the self dealing rule, pour encourager les autres, renders irrelevant any speculation by the court as to the reasons why the claimants might wish to engage in such an apparently self-destructive exercise. The question is therefore whether the self-dealing rule has been infringed, upon the true construction of the Settlement and of the March 1995 appointments themselves. Since serious arguments are advanced by the defendants based upon construction of the Settlement, and upon construction and, in the alternative, rectification of the March 1995 appointments, it is necessary first to set out the relevant details of those deeds, and the admissible matrix of background fact including, to the extent relevant, the intentions of the parties.[103]It is first necessary to set out more of the terms of the Settlement which, it will be recalled, appointed Basil both a trustee and the Principal Beneficiary with an immediate life interest in the Trust Fund, and which included in clause 7 a power of appointment in the widest terms in favour of any of the Beneficiaries, including himself. The Settlement made no reference whatever to Patricia, it being the reasonable apprehension of Basil as de facto settlor that any express mention of her might disincline Reeva to execute the Settlement at all.[104]Under the heading “Administrative Powers”, clause 9 of the Settlement provided as follows:
“THE Trustees shall in addition and without prejudice to all statutory powers have the powers and immunities set out in the First Schedule provided that the Trustees shall not exercise any of their powers so as to conflict with the beneficial provisions of this Settlement.”
Clause 11, under the heading “Clause Headings” provided that the Clause Headings were included for reference only and were not to affect the interpretation of the Settlement.[105]The First Schedule (also under the heading “Administrative Powers”) contained a mixture of powers, immunities and other miscellaneous provisions most, but by no means all of which may truly be described as administrative rather than dispositive. The exceptions include paragraph 3, by which the trustees are given power to permit occupation of real or moveable property, and enjoyment and use of chattels or other moveables, by the beneficiaries, and paragraph 6, which enabled the trustees, so as to bind their successors, to release or restrict the future exercise of all or any of the powers in the Settlement, a provision which, no doubt for good fiscal reasons, must have been applicable to both dispositive and administrative powers.[106]Paragraph 9, under the heading “Power to permit self-dealing” provides as follows:
“THE Trustees shall have power to enter into any transaction concerning the Trust Fund notwithstanding that one or more of the Trustees may be interested in the transaction other than as one of the Trustees and without any trustee who is so interested being liable to account for any reasonable incidental profit provided that at least one of the Trustees who is not interested in the transaction other than as a trustee approves the transaction.”
[107]Returning to the facts, it will be recalled that Basil had, prior to the execution of the Settlement in January 1995, already decided that Patricia should become a beneficiary with effect from his death, and that she should then (that is, on his death) also become a trustee. In February 1995 he changed his mind as to timing, forming the intention that she should become a trustee without further delay, and he obtained his then co-trustee Robert’s approval to that course, for the implementation of which they instructed solicitors, namely Alexander Easton Kinch (“Alexanders”). The discharge of that retainer fell to a Mr Mark Buzzoni, a partner in Alexanders, who gave evidence in the present proceedings by an unchallenged witness statement, exhibiting both the fruits of his labours in the form of the three March 1995 deeds, and a contemporaneous attendance note of his own which describes in precise and admirable detail the circumstances and (importantly) the order in which they came to be executed.[108]Mr Buzzoni prepared engrossments of the three deeds before any approach was made by anyone to Patricia in relation to the matter. Basil and Robert appear to have taken it for granted that she would cooperate in the achievement of objectives largely designed for her benefit.[109]It is not in fact necessary to have regard to Mr Buzzoni’s attendance note to perceive the order in which, if they were to have effect in accordance with their express literal terms, each of the appointments needed to be executed. The first, described as a Deed of Appointment of New Trustee, was made between(1) Basil and Robert as “Continuing Trustees” and(2) Patricia as “The New Trustee”. It provided for the appointment of Patricia as a new trustee in standard terms.[110]The second, described as a Deed of Addition of Beneficiaries, was expressly made by Basil, Robert and Patricia as “the Trustees”, and recited that they were the present trustees of the Settlement. Pursuant to clause 4 of the Settlement they added Patricia, her children and her remoter issue as beneficiaries of the Settlement.[111]The third, entitled simply Deed of Appointment, was also expressly made by Basil, Robert and Patricia, this time as “the Appointors”. It also recited that they were the present trustees of the Settlement. Pursuant to Clause 7 of the Settlement the Appointors revocably appointed and declared that the Trust Fund should from the date of Basil’s death be held upon trust:(a) To pay the income of the Trust Fund to Patricia for life; and(b) With power at any time during her entitlement to the income of any part of the Trust Fund, to transfer or raise and pay the same to or for her use, benefit or advancement. I shall refer to those deeds as the First, Second and Third Appointments respectively.[112]Patricia’s evidence shows that she first became aware of the Settlement, and of Basil’s and Robert’s plans to make her both a trustee and a beneficiary under it, when she attended Alexanders’ offices on 9th March 1995. She professed no recollection of what then occurred, but recalled understanding at the time Basil’s wish that she should become both a beneficiary and trustee of the Settlement, and that she should obtain a life interest on Basil’s death.[113]Mr Buzzoni’s attendance note shows that he began by explaining the meaning and effect of the First Appointment and the duties of a trustee, pointing out (prophetically in the event) that she might by becoming a trustee become a party to proceedings if any third party sought to challenge the trust arrangements. She agreed to become a trustee, and signed the First Appointment. Mr Buzzoni then explained the meaning and effect of the Second Appointment, which was then approved and signed. Finally he explained the meaning and effect of the Third Appointment, and its fiscal objective in securing an inheritance tax exemption on Basil’s death. It was then approved and signed. That description of the order of events was not contradicted by any evidence and unchallenged as a description of the relevant facts.[114]It was common ground that a trustee who appoints herself as a beneficiary of the trust, or who, separately or together with other trustees, exercises a dispositive power in her own favour commits a breach of the self-dealing rule unless either:(a) The rule is disapplied by the terms of the settlement; or(b) The trustee is placed by the settlor in a position of necessary conflict, by being given a power which is expressed to be capable of being exercised in her own favour. The first of those exceptions needs no amplification. The existence and rationale for the second is sufficiently explained in Lewin (op. cit.) paragraphs 20-96 and 20-131.[115]Mr Barlow sought to defend the Second and Third Appointments from the claimants’ challenge upon four self-standing grounds. First, he submitted that they were both “transactions concerning the Trust Fund” within paragraph 9 of the First Schedule. Second, he submitted that, since Patricia played no part in the decision-making process, but merely signed at Basil’s request, there was no breach of the self dealing rule even if applicable. Third, he submitted that a robust and purposive construction of the three appointments treated as a single composite transaction could and should be adopted so as to achieve their obvious purpose, in effect by treating them as if they had occurred in the order two, three, one. Fourthly, he submitted that if all else failed, the appointments should each be rectified, as to the Second and Third by deleting all reference to Patricia as a trustee or appointor, and by inserting a provision into the First which provided that it should be no more than an escrow, the condition for its effect being the prior execution of the Second and Third Appointments. Thus rectified, the appointments would achieve the obvious intention of the parties to them.[116]A recurring theme of all Mr Barlow’s submissions was that the apparent infringement of the self dealing rule came about as the result of an unnecessary and un-forced mistake on the part of Mr Buzzoni, it being common ground that the purpose for which he had been instructed could perfectly properly been achieved by Basil and Robert making the Second and Third Appointments, and only thereafter appointing Patricia as a trustee. Mr Brisby did not challenge that analysis, but submitted that its only consequence was that, subject to limitation, Mr Buzzoni and his partners in 1995 could be brought to book for the consequences of that mistake.[117]I turn first to Mr Barlow’s case arising from paragraph 9 of the First Schedule to the Settlement. He readily conceded that, at first blush, and in particular if the temptation to have regard to headings was not resisted, it might be supposed that the draftsman of the precedent for paragraph 9 had primarily in mind the disapplication of the self dealing rule to transactions of an administrative rather than dispositive nature, such as sales of or dealings with trust property otherwise than by way of appointment or beneficial distribution. Certainly, as Mr Brisby submitted, the immunity from liability to account “for any reasonable incidental profit” points in that general direction. Furthermore, a distribution or appointment of all or part of the Trust Fund may be thought not to fall entirely comfortably within the phrase “any transaction concerning the Trust Fund”.[118]Nonetheless Mr Barlow submitted that upon a broad construction of that phrase and of paragraph 9 as a whole, it required no violence to the language to conclude that a beneficial distribution or appointment was such a transaction, in particular because the immunity from accountability for reasonable profits was conferred by way of addition, rather than in a manner which confined qualifying transactions rigidly to those which did or might produce such profits. The real question, Mr Barlow submitted, was whether that broad construction, or the narrower (administrative) construction was to be preferred, having regard to a purposive approach to the Settlement as a whole, and to paragraph 9 as part of its terms.[119]Before addressing that question directly I must first deal with two submissions by which Mr Brisby sought to persuade me that the broad construction was wholly inadmissible. First, he said that the mere appointment of a new beneficiary was not a transaction concerning the Trust Fund, however broadly that phrase was construed. Unless and until that beneficiary received some dispositive benefit, her mere addition as a beneficiary did not affect the trust fund at all. It was sufficient for Mr Brisby to confine his attack to the Second Appointment, since if invalid it automatically invalidated the Third. I reject that submission. It seems to me to beg the very question in issue, namely whether paragraph 9 is to be broadly or narrowly construed.[120]Secondly Mr Brisby drew attention to the concluding words of clause 9 of the Settlement, which prohibits the exercise of any of the powers in the First Schedule “so as to conflict with the beneficial provisions of this Settlement”. Since the self dealing rule was embedded by operation of law in the Settlement, the application of paragraph 9 to the Second and Third Appointments would, he submitted, conflict with those beneficial provisions. With respect, that argument seems to me to be completely circular. If it were correct, paragraph 9 of the First Schedule would have no effect at all. In my judgment paragraph 9 would, broadly construed, disapply the self dealing rule from prohibiting the Second and Third Appointments, and the critical question is whether a broad rather than a narrow construction is correct.[121]In favour of a narrow construction is of course the fact that paragraph 9 operates, if at all, by way of derogation from the self dealing rule, which is a fundamental principle of trusteeship such that exceptions to it should normally be narrowly construed. That, it seems to me, is a correct starting point, but may yield to clear evidence to a contrary intention, either within the Settlement itself or from a perception that a broad rather than a narrow construction would better serve the purposes for which the Settlement was made.[122]Looking firstly within the confines of the Settlement, it is clear that the Settlor intended the self dealing rule not to have effect in respect of wide areas of the trustees’ powers, provided always (as required by paragraph 9) that an independent trustee approved the relevant transactions. For example, Basil was expressed to be both a trustee and a principal beneficiary at the outset. Although his life interest in the income was conferred by the Settlement itself, he was also one of the objects of a wide power of appointment, capable of being exercised by the outright appointment of the capital of the entire Trust Fund in his favour. His participation in such an appointment did not of itself require recourse to paragraph 9. The discretion to consider whether to exercise that power in his favour was placed upon him by the Settlor. Nonetheless the fact that the self dealing rule was, by the terms of the Settlement, inapplicable in relation to an original trustee, in respect of a broad power of appointment potentially in his favour, hardly suggests that the purpose of the Settlement was generally to place the trustees within the confines of that rule. It was, from the outset, and for the life of its principal beneficiary, a settlement designed to give full dispositive powers to a trustee who was also a beneficiary.[123]The evidence also shows that, prior to the execution of the Settlement, Basil as its de facto settlor also intended that Patricia should, after his death, simultaneously be a trustee and beneficiary who pursuant to clause 7 would enjoy an identical power of appointment in her own favour. Since the Settlement was created in relation to property which would otherwise have been transferred to him as part of the divorce proceedings between him and Reeva, that additional purpose, proved as part of the background to the making of the Settlement, is not lightly to be ignored. Since, pursuant to that intention, Patricia would become a successor rather than original trustee, the established exception to the self dealing rule where a settlor imposes a conflict of interest upon the trustee would not apply. Accordingly, the complete fulfilment of Basil’s pre-existing intention, such that Patricia could, after his death, appoint capital in her own favour, would be impossible without recourse to a broad construction of paragraph 9.[124]The difficulty with that analysis, as Mr Brisby was quick to point out, is that Reeva, as a party to the Settlement, cannot be shown to have shared that particular purpose. On the contrary, any mention of Patricia to Reeva was avoided in connection with the preparation and execution of the Settlement. Conventionally, background facts are admissible for the construction of multi-party documents only to the extent that they can be seen to have been known by all the parties or within the reasonable contemplation of them all. I have not found this point easy. In my judgment it deprives the argument based upon Basil’s dispositive intentions towards Patricia of what would otherwise be the status of a knock-out blow on the issue as to the broad or narrow construction of paragraph 9. Nonetheless to treat Basil’s intention as irrelevant to construction would I think represent a triumph of form over substance. The Trust Property would but for the Settlement had fallen within Basil’s sole dominion pursuant to the divorce arrangements. I consider it therefore proper to have regard to unchallenged evidence as to his purposes, in connection with its construction, even if they were not known to Reeva.[125]In my judgment this is a case where the combined effect of the points which I have described as favouring a broad construction outweighs what would otherwise be the normal approach to the construction of an exception to an important general rule of law. It follows that I consider that both the Second and Third Appointments were transactions concerning the Trust Fund within the meaning of paragraph 9. Notwithstanding Patricia’s interest, neither Basil nor Robert was interested in the transaction otherwise than as trustees, and they both approved of it. They were of course also the instigators of it. Accordingly, the self dealing rule was disapplied by the terms of the Settlement in relation to the Second and Third Appointments, and they are not thereby vulnerable to being avoided at the instance of the claimants, or of any other beneficiaries, now or in the future.[126]That conclusion makes it unnecessary for me to consider Mr Barlow’s alternative submissions in any detail. They are all based upon facts which are not in dispute so that, if a higher court were to reach the opposite conclusion to mine in relation to the true construction of paragraph 9, the need to consider the other submissions would necessitate no re-trial. Nonetheless, so that any appeal may be truly an appeal, I express my conclusions on each by way of bare summary.[127]But for paragraph 9, and subject to Mr Barlow’s fall-back submissions of construction and rectification of the three appointments, the “no breach” point is both wrong in fact, and self-defeating. Patricia may not have been the originator of the proposal to include her as a beneficiary, or to confer upon her a reversionary life interest. She was nonetheless the willing participant in those two appointments after she had agreed to become, and had become a trustee, and then been advised of the intended meaning and effect of the Second and Third Appointments, should she decide to execute them. She was therefore a participant. If she had not been, an absence of participation in the Second and Third Appointments after her appointment as a trustee would have been fatal to their validity in any event.[128]Had it been necessary to consider it, I would not have accepted Mr Barlow’s submissions as to the true construction of the three appointments, treated as a single transaction. He demonstrated that where a literal construction of a composite transaction will defeat its obvious purpose, a purposive construction may be adopted even if it involves considerable violence to the language. The flaw in the argument, as it seems to me, is that the three appointments were in fact and as a matter of analysis necessarily separate consecutive transactions. Each of the Second and Third depended upon the prior execution of those which preceded it. Only if Mr Buzzoni had chosen to achieve all three objectives in a single document which was silent as to chronology could this submission have prevailed.[129]Finally, while I admire the ingenuity behind Mr Barlow’s rectification argument, I have not been persuaded by it. He drew support from first instance decisions which, to avoid unintended adverse tax consequences, display a quite remarkable degree of imagination in substituting for the defective machinery, alternative machinery of the type required by statute, which achieves the intended fiscal effect: see in particular Jervis v. Howle and Talke Colliery Company [1937] 1 Ch 67, Bartlam v Coutts & Co [2006] EWHC 1502 (Ch); [2006] WTLR 1165, and Wills v.Gibbs and others [2007] All ER(D) 509, reported in summary in 31 Simon’s Weekly Tax Intelligence at p.1970.[130]The trouble with this submission is that rectification would appear to achieve, by something akin to magic, a precise reversal of the order of events actually intended and implemented by the parties. Of course, the order of events chosen was not essential for the achievement of the overall objective. In fact, but for paragraph 9, it would have been fatal. Nonetheless it was both chosen and implemented. While the court will by rectification replace a word deliberately chosen by the parties, where it can be shown that they thought it meant something different from its true meaning, I am aware of no case in which rectification has been used for re-writing the intended course of history, rather than merely for re-writing an agreement, deed or other document so as to reflect the common intention of the parties. Mr Barlow’s ingenious proposed rectification would re-write history in substance, even though it might appear not to do so in form.[131]The result is that in my judgment paragraph 9 of the Schedule to the Settlement constitutes the only one of Mr Barlow’s arguments which rescues the March 1995 appointments from the potentially disastrous consequences of the application of the self dealing rule. Those consequences would have included a large inheritance tax charge, to the detriment of the Settlement and all its beneficiaries. Since the court might have sanctioned an appointment to Patricia now, despite her remaining a trustee, the setting aside of the March 1995 appointments would not necessarily have benefited the claimants at all. I have considerable misgivings whether but for paragraph 9 there would have been no other escape from such consequences, but none was argued. The question whether the court has power to avoid the mechanistic application of the rule, however valuable its deterrent effect, in a rare case where its application would merely cause damage to all concerned, will have to be left to another occasion.

Cited in 10 later judgments

and 1 more case