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The judicial committee of the Privy Council delivered judgement in Vadim Schmidt v Rosewood Trust Ltd on the 23rd of March 2003. The judgement represents a subtle emphasis on the relationship between the disclosure of trust documents and the shift in precedents set by previous case law. Namely, in relation to confidentiality, disclosure and individuals who may have benefits under discretionary trusts or those who are objects of mere powers. For the purposes of understanding the full scope of issues and problems that may have been raised by the Privy Council’s judgment it is appropriate to consider the common law position prior to Rosewood, thus allowing a better understanding of the position created by the shift. It will also aid in identifying the issues raised and their impacts in relation to trustees positions and the formation of trusts.
The Pre-Rosewood Position
Before the case of rosewood came before the Privy Council the common law position was reasonably straightforward in that trustees and beneficiaries were fairly well educated as to their respective rights and duties in relation to their position when it came to seeking trust documents from trustees. Beneficiaries of transmissible interest had a prima facie right to inspection because they were said to have proprietary rights, and, in a sense the documentation was seen as belonging to the beneficiary, Clarke v Earl of Ormond and O’Rourke v Derbyshire. For beneficiaries with transmissible interest the limitations arose when there where competing commercial interests or if the beneficiaries where seeking disclosure in order to attack the settlement.
Over 30 years prior to Rosewood being entertained by the Privy Council the courts in various common law jurisdiction grappled with the problems presented by the beneficiaries of discretionary trusts, often widely drawn, trying to seek disclosure. This was illustrated in the cases of Chain-Nickson, Spellson, Hartigan nominees Pty Ltd, Murphy, and Stuart Hutchison. The courts confirmed in the above cases that beneficiaries of discretionary trust had similar rights to those who enjoyed transmissible interests. It is logically viable to assume such a position. If the beneficiaries were unable to view documentation it would in essence mean the trustees where unaccountable. Thus creating a great chasm between the trusty/beneficiary relationship, purely by reason that none of the beneficiaries would have any idea as to how the trust is being administered and the trustee having no practical obligations in administering the trust. Plainly put, there would be no one to be held accountable. The discretionary beneficiaries cannot be said to have proprietary interest in the documentation therefore, the prima facie right to inspect has been characterised by the above cases as a necessary part of the trustee’s obligation to account for his trusteeship. The courts have been fairly strict when making decisions in relation to objects of mere power seeking disclosure. They have set themselves against giving such objects rights to disclosure. However, in Mcphail v Doulton Lord Eldon emphasised on the narrowness in difference between beneficiaries of discretionary trusts and objects of mere powers thus indicating there may be situations were objects may have a strong case for disclosure. According to Labes and Wilson there is no strict entitlement to inspection. It is down to the courts discretion as to what documents a beneficiary is entitled to inspect furthermore, if the courts find it appropriate they may allow ‘objects of mere powers’ to inspect thus concurring with Lord Eldon in Mcphail.
The Case Of Rosewood
The change in emphasis illustrated by Rosewood is in stark contrast to previously set common law precedent. The disparity between the position of a discretionary beneficiary and an object of a mere power was one of the issues raised by the courts. The privy council considered the recent developments of jurisprudence on the subject and after considering the appropriate case law concluded the following on the matter; the beneficiary’s right to inspect trust documents is not dependant on entitlement to a fixed and transmissible beneficial interest, the ‘bright dividing line’ separating beneficiaries of discretionary trusts and objects of mere powers is no longer existent and the entitlement should not be construed as arising from a right but merely out of discretion of the courts, subject to safeguards and issues of confidentiality. Rosewood marks a departure from the traditional English position of inspection. In Re Cowin North J clearly stated that ‘beneficial ownership gives a prima facie right to inspection.’ However the shift was inevitable in light of the judgement given in Mcphail were Lord Wilberforce set out that the test for discretionary beneficiaries and objects of mere powers was to be the same, namely the ‘given postulant test’.
These developments are extremely important because they not only express the leniency, the courts are willing to exercise, in allowing individuals whom they feel as having a strong case for disclosure. They also seem to revoke fundamental rights given to beneficiaries of transmissible interests through previous common law precedent i.e. the proprietary right. The dicta of Lord Wrenbury has been given above and it was further considered in Re Londonderry’s. Even though only Salmon L.j expressly adopted the proprietary analysis of the right to inspection, it is acknowledged that all three judges of the court of appeal accepted the basic principles enunciated by Lord Wrenbury. It is evident that rights given under proprietary basis were appropriate during the period when fixed trusts were more common i.e. the 19th century. However, to try and implement such instruments today when trusts are created for large classes of people the practicalities of providing trust documents for everyone would be unworkable and difficult. Labes and Wilson concur stating that the decision to revoke a right to disclosure on the basis of a proprietary interest is a correct one taking into consideration the change in practices adopted by individuals creating trusts from the 19th century to the present day. According to Penner 2008 the decision in Rosewood is questionable to the extent that it creates a “good measure of uncertainty”. In McDonald, an Australian case, Bryson JA held that in cases were beneficiaries had a vested interest the courts should have no discretion. The individual should be entitled to view documentation as a matter of right. It is clear that even though the Privy Council tried to clarify the situation they seem to have, according to some academic opinion, muddied the waters further. Hayton’s plea is both pragmatic and logically practicable and its adoption would only create certainty and transparency on the subject of disclosure. He states, “More openness between trustees and beneficiaries. The more one tries to hide things from people the more suspicious they become: no one like being treated like a mushroom, being kept in the dark and fed you know what.” Rosewood clearly takes a new approach in relation to the rights to view documentation and as it is illustrated above some academics acknowledge and welcome the approach were as others are more sceptical to move away from 150 years of common law precedent. The departure by the Council allows us to address the next critical issue that is raised by the removal of proprietary rights, namely, the issue of confidentiality and what documentation the beneficiaries be allowed to inspect once the courts feel they have a strong claim.
The issue of confidentiality pre Rosewood was illustrated in Re Londonderry’s were it was concluded that certain documents, namely those relating to the reasons why certain decisions were made by the trustees, should not be disclosed. In order for this to be achieved the courts understood that they would need to put confidentiality above any proprietary right professed by a beneficiary. It was further stated that such documents should not be classed as ‘trust documents’ for the purposes of disclosure. Briggs J termed the extract from the above case as the Re Londonderry’s principle and went on to further state in Breakspear “… the purpose of the exercise of discretionary dispositive powers by trustees is inherently confidential, and this confidentiality exists for the benefit of the beneficiaries rather then merely for the protection of trustees.”
At the heart of the problem is a great big conflict of interest between the trustees’ right to exercise his discretion without interference and the right to accountability. “Briggs J describes confidentiality as being in the interests of both beneficiaries and the ongoing administration of trusts”. It should be seen in the interests of beneficiaries because it allows trustees to make discreet but thorough enquiries as to competing claims to the benefit without fear or risk that they will come to the beneficiaries’ knowledge. Furthermore, confidentiality serves the interest of family harmony and mutual respect. The trustees are able to receive all statements of claim and disclose none to dissatisfied members thus limiting the possibilities of family feuds and deterring trustees from taking their position in office by a perception that their discretionary deliberations will be subject to scrutiny by disappointed or hostile beneficiaries, and lead to potentially expensive litigation battles in court. The only downside that is evident in allowing trustees to exercise confidentiality to its fullest extent is that they would become unaccountable for their decisions, as acknowledged by Briggs J in Breakspear.
The case of Londonderry’s, however, does not specifically deal with letter of wishes, one of the documents sought by the plaintiff in Rosewood, another entity that has found difficulty in being realised as either a trust document or a non trust document. Letters of this nature have become a common feature in modern discretionary trusts. Fox 2008 gives a good indication as to the purpose and definition of a “wish letter”. The judgement in Breakespear illustrates that the trustees and the court are generally justified in keeping the letter of wishes confidential thus affirming the long established rule that trustees need not give reasons to beneficiaries for the exercise of their discretions. Tey 2008, is extremely critical of Briggs J’s holding in Breaksspear; “subject to the courts overriding discretion, letters of wishes should be regarded as confidential and not disclosable, should not be accepted.” This notion is put forward on the basis that the shift no longer deals with trying to preserve confidentiality but rather to bring accountability, referring to the judgement in Rosewood. Tey 2008 conclusively states that the courts must implement a balance where by they can determine whether the trustees have obligations to disclose letters of wishes to beneficiaries. However, it should be noted that the beneficiary’s proprietary interest does not entitle him/her right to access. Essentially rosewood endorses the notion of trustee confidentiality as the basis of limiting what a beneficiary can see, per lord walker.
Taking into consideration other common law jurisdiction it seems to be evident that the principle of confidentiality as having overriding powers over the general impetus to disclose to beneficiaries is alive and well. In Crowe and Foreman, two international cases, the judges confirmed the position to some extent. In the former the judge found that Londonderry’s was still good law in Australia and in the latter the judgement indicated that discretionary beneficiaries were entitled to information which would make trustees accountable. However, these rights are not granted without limits. What is the situation when a settlor specifically states he/she does not want the letter to be disclosed to any of the potential beneficiaries? is that adequate in forcing courts to stop individuals in seeking disclosure in those particular circumstances. Mahoney J in Hartiganacknowledged the significance of confidentiality in discretionary trusts of the present kind but taking into consideration special cases, it is proper that the settlor’s wishes and his privacy be respected. In the case of Foreman however, the case of confidentiality was overridden by the trustees’ duty to the beneficiary, in the judge’s view.
The inconsistency illustrated by the above cases is a clear deterrent to potential trustees. According to Ambrose 2006 “allowing beneficiaries to scrutinise trustees’ decision making processes would discourage most people from taking on the role and would fetter their discretion.” This is a significant drawback in this particular field with trustees unwilling to take up their roles because they do not know where they stand in relation to documentation that should be made available to individuals seeking disclosure. The problem is with what should be classed as trust documents and what should not be. There is no clear definition as to what constitutes a ‘trust document’ but case law has tried to shed some light on the matter even though it may not be comprehensive it is still something that can be relied on for guidance. Documents connected with the trust are trust documents and prima facie property of the beneficiaries. In Londonderry’s the courts found great difficulty in trying to define in general terms what trust documents were. However, the reasoning adopted by salmon J was relied on in Hartigan and the issue was fully analysed in Breakspear. The overall out come is that the beneficiaries do not have a prima facie right to disclosure of letter of wishes. If the trustees feel that disclosure would be in the interest of sound administration of the trust, subject to their discretion not being fettered by the settlor, then they should. The matter has now been clarified by the Privy Council in Rosewood where the question was whether beneficiaries of a discretionary trust or objects of a mere power were in a position to seek disclosure. The council initially removed the classing system by employing the idea that the line distinguishing the different types of beneficiaries is no longer existent and those with transmissible interest should no longer depend on their proprietary rights but on the discretion of the courts for the right to seek disclosure. The council went on further to point out if the courts felt that objects of mere powers put forward a strong case for disclosure the courts after consideration may allow disclosure even to that particular individual whom prior to rosewood would have had no standing in court on this particular issue. The council tried to preserve the confidentiality aspect but indicated in situations were they felt necessary that disclosure of letter of wishes would be of use to beneficiaries they may enforce a notice to that effect.
The Position Rosewood Has Created.
Looking upon the development from the case of rosewood a neutral to the field would most certainly be under inclination that all that has been done, essentially, is that the power has shifted from the trustees and beneficiaries to the courts who it seems, now, have complete discretion as to employ what ever terms they seem fit dependant upon the case facts. The focal point of this disclosure saga is whether the courts are in a suited position to take into consideration the knock on effects their decisions would have if they did allow beneficiaries and objects of mere powers to seek full disclosure. Take for example the family trust and those dissatisfied or hostile beneficiaries who would seek to litigate the matter further because they feel hard done by. What about preserving family harmony and respecting the wishes of the settlor.
Would it not be appropriate to set up an independent arbitrary body that would be entrusted to seek documentation of behalf of beneficiaries and clarify the situation in relation to the administration of the trust? This would allow the confidentiality to remain intact, the beneficiaries would be satisfied with the administration of the trustees and the family harmony would remain undamaged. Trustees would not become deterred in taking their position out of fear of coming under scrutiny. A pragmatic approach, it seems, that would solve the problems created by all the issues arising from these types of situation. The only setback seems to be the consistency at which cases of this nature come before the courts. It would be unrealistic to set up such a body that should remain dormant until a case for inspection was presented to it, and not having any hard statistics it could be one case every year or one case every five years. The landmark judgement in rosewood has opened up the gates for any and all to bring forward claims seeking disclosure. It seems the courts will be entertaining more cases of this nature in the near future and so it may not be such a ludicrous idea after all.
Even though there has been significant development in the field within the last fifty years, some issues seem to remain while others have been created through the change in common law position. Take for example the problem in defining a ‘trust document’ as is illustrated above. Also with the change in position there is no real guidance for trustees as to what documentation they should allow beneficiaries to view and whether these should only be to those with transmissible interest. I.e. should those who are objects of powers and beneficiaries of discretionary trusts apply to court at first instance to seek disclosure or should they first approach the trustees. In any case it is clear that confusion is rife in this field with regards to disclosure purely because of the inconsistency with judgements being made by high appellant courts that are in conflict with one another. The problem is not only subject to confusion but time wasting and money being spent on court fees which would be welcomed with open arms by any of the beneficiaries. Therefore it seems it is in the best interest to let the trustees carry on with their administrative duties and hope that they will remain faithful to their pledge and not become tainted by the power that is vested in them by the settlors’.
It is arguable that the judgement in Rosewood is not entirely consistent with past judgements. Neither have the council fully accomplished what they set out to achieve. This cannot be attributed to incompetence but rather to the many intertwining factors that affect the world of trusts. It is evident that there never is a simple solution to a problem so vast and it has been clearly illustrated in Rosewood. The beauty of the common law system is it adaptability to the changes that occur around us and where one judgement is inadequate another will surely surpass it in competence.
Hayton, David . Mitchell, Charles. Commentary and Cases on the Law of Trusts and Equitable Remedies, 12th edition, UK, Sweet & Maxwell, 2005
Martin, Jill. E. Modern Equity, 18th edition, UK, Sweet & Maxwell, 2009
Penner, J.E. The Law of Trusts, 6th edition, (US, OUP, 2008)
Moffat, Graham. Trusts Law, 5th edition, UK, Cambridge University Press, 2009
Hudson, Alistair. Equity & Trusts, 6th edition, UK, Routledge – Cavendish, 2010
Pettit, Phillip, H. Equity and The Laws of Trusts, 10th edition, US, OUP, 2006
Civil Procedure Rules 1998
Data Protection Act 1998
Trustees Act 2000 Ch 29
Ambrose, Mary. Disclosure to beneficiaries – whither confidentiality?, P.C.B. 2006, 4,
Davies, J. D. integrity of trusteeship, L.Q.R. 2004, 120, Jan
Fox, D.M. Disclosure of a settlor’s wish letters in a discretionary trust, C.L.J. 2008, 67(2)
Goodman, Dawn. Labes, Henrietta. Using Discretion, S.J. 2003, 147(25),
Good, Miguel. Breakspear and others v Ackland and another: letters of wishes – do beneficiaries have a right to see them?, P.C.B. 2008, 6
Griffiths, Gerwyn, Ll. H. An inevitable tension? The disclosure of letter of wishes, Conv. 2008, 4
Tey, Tsun Hang. Letters of wishes and trustee’s duties, Tru.L.I. 2008, 32(3),
Wilson, Richard. Labes, Henrietta. Scmidt v Rosewood: a closer inspection, P.C.B. 2004, 3
Table Of Cases
Breakespear v Ackland  EWHC 220 (Ch)
Chaine-Nickson v The Bank of Ireland  IR 393
Clarke v. Earl of Ormond (1821) JAC 108 37 ER 791
Crowe v Stevedoring Employees Retirement Fund  P.L.R. 343.
Foreman v Kingstone  WTLR 823
O’Rourke v Darbyshire  AC 581
Hartigan Nominees Pty Ltd v Rydge  29 NSWLR 405 (Australia)
McDonald v Ellis  NSWSC 1068
McPhail v Doulton  AC 424 HL
Murphy v Murphy  3 All ER 1
Schmidt v Rosewood Trust Ltd  UKPC 26
Spellson v George (1987) 11 NSWLR 300 (Australia)
Stuart Hutcheson v Spread Trustee Co Ltd  3 ITELR 683 (Guernsey)
Re Cowin (1886) 33 ChD 179
Re Gestetners settlement  Ch 672
Re Londonderry’s Settlement  Ch 918
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