Background
The claimants, beneficiaries under the Settlement in question, sought disclosure of a wish letter written to the then trustees by the de facto settlor of the Settlement and setting aside of the addition of a beneficiary and appointments made to her.
The case provides an analysis of the legal nature of wish letters in connection with discretionary trusts and whether the wish letters generally fall within the ambit of the Londonderry principle (Re Londonderry's Settlement [1965] Ch 918), pursuant to which the process of the exercise of discretionary powers by trustees is inherently confidential.
Held - Nature of the Claim
The High Court confirmed that the basis for seeking disclosure of a wish letter is discretionary and not based upon a proprietary right of beneficiaries.
Held - The Londonderry Principle
The High Court upheld the Londonderry principle under which it is considered to be in the interests of both the beneficiaries and trustees of a trust for the exercise by trustees of their discretionary powers to remain confidential throughout the process.
Held - Wish Letters
The material "which the settlor desires that the trustees should take into account when exercising their discretionary powers" was held by the High Court to constitute a defining characteristic of wish letters.
Held - Confidentiality and Discretion
Briggs J found it axiomatic that wish letters be regarded prima facie as confidential, to substantially the same extent and effect as the process they serve, i.e., the exercise of discretionary powers by trustees.
The trustees should regard wish letters as confidential and may, subject to their discretion, maintain, relax or abandon that confidentiality, as they judge best serves the interests of the beneficiaries and the due administration of the trust.
The High Court went further to state that the trustees' discretion continues regardless of a request for disclosure by a beneficiary or any change in settlor's circumstances. However, a full disclosure by trustees to the court is necessary when applying for the court's directions.
Court proceedings may be brought solely for the purpose of determining whether the disclosure of a wish letter should occur where;
- the trustees surrender their discretion to the court;
- the trustees, having exercised their discretion (and refused to
disclose), seek the court's confirmation of their
decision;
- a beneficiary contests a trustees' decision not to disclose
a wish letter; or
- a beneficiary seeks to invoke the discretionary exercise by the
court of administrative powers in respect of the trust.
Held - Burden of Proof
Notably, the High Court decided that where the courts' administrative discretion is sought to be invoked by beneficiaries, dissatisfied with trustees' decision not to disclose a wish letter, the burden of proof rests upon the beneficiaries and requires a demonstration of a lack of good faith or unfairness on the part of the trustees.
Comment
This English law case provides a broad review of the common law principles germane to wish letters and will be of persuasive relevance in other jurisdictions. However, the conclusions are expressly limited to wish letters in connection with family discretionary trusts and do not extend beyond letters contemporaneous with the settlement.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.