Letters of Wishes and Litigation
6 October 2011
Keith Robinson
Counsel
Litigation & Insolvency
Bermuda
In Outline
• Categorization of Letters of Wishes
• Refresher on law of disclosure of
documents to beneficiaries
• Focus on Letters of Wishes and how they
“fit” into the general law
• Case study: Breakspear v. Ackland
Categorization
• What we talk about
when we talk about
“Letters of Wishes”
• Signed Letter?
• Or Unsigned
Memorandum?
• The question of
medium
Letters of Wishes - Status
• Trustee are entitled to take into account
Settlor’s wishes – see Re Manisty’s
Settlement [1974]
• Must a trustee do so?
• No clear answer in case
law
Status – Some Cases
• Jersey Royal Court– Re Rabaiotti’s
Settlement [2000]
• Definition: “… a document addressed by a settlor to
trustees which is not binding upon the trustees, but
which indicates the settlor’s thoughts and wishes as to
how the trustees might exercise their discretionary
powers” [para 34]
• “It is an informal document which the trustees are free
to ignore. It is merely an expression of the settlor’s
wishes” [para 45] (emphasis added)
Status – Some More Cases
• New Zealand High Court
• Kain v. Hutton [2005]
• “The legal position with reference to a statement or
letter of wishes is clear, namely that trustees must take
serious account of the settlor’s wishes but always
appreciating that the ultimate decision is theirs. It
follows that trustees may properly decide to act contrary
to the settlor’s wishes after taking account of all the
relevant circumstances”
Status – Yet More Cases
• Australia – NSW Court of Appeal
• Hartigan Nominees v. Ridge [1992]
• Letter of Wishes was “an essential
component of, or companion to, the trust
deed itself”
Status – Some Conclusions
• Better view is that trustees are bound to
have regard to Letter of Wishes
• Lewin “… the notion that the trustees may
be entitled to take [a Letter of Wishes]
into account but not bound to do so is in
our view wrong, for it is either a relevant
consideration which ought to be taken into
account or an irrelevant one which should
not”
Disclosure to Beneficiaries
• Need to distinguish between:
• (a) Disclosure in hostile trust litigation;
and
• (b) Disclosure to beneficiaries on demand
and Court’s supervisory control over this
process in cases of dispute.
Disclosure in Hostile Litigation
• Normal rules of civil litigation (“discovery”) apply in trust cases
namely proceedings by beneficiaries against trustees challenging
their decisions or otherwise making a breach of trust claim against
the trustees
• Order 24, Rule 1 of the Rules of the Supreme Court “… there shall…
be discovery by the parties to the action of the documents which are
or have been in their possession custody or power relating to
matters in question in the action” (emphasis added)
• In general, the confidential nature of a document is not a ground for
resisting discovery – the test is relevance
• In hostile litigation, relevant Letters of Wishes will be provided to
the opposing parties (beneficiaries) as part of the discovery process
Disclosure on Demand by Beneficiaries I
• Schmidt v. Rosewood Trust [2003]
• A beneficiary has a right to seek disclosure of
trust documents
• If refused by trustee, the beneficiary can apply
to the Court which may or may not intervene
• The right to seek the Court’s intervention is an
aspect of the court’s inherent jurisdiction to
supervise and where appropriate intervene in
the administration of trusts
Disclosure on Demand by Beneficiaries II
Court may have to form judgment on:
• Whether a discretionary object should be
granted disclosure
• What class of documents should be
disclosed
• What safeguards should be imposed, e.g.
undertakings, redaction etc.
Breakspear v. Ackland [2009] - Facts
• Settlor’s Letter of Wishes contemporaneous
with settlement
• Beneficiaries of the trust were the settlor and
his children
• The claimants were three of his children. They
asked for disclosure of the Letter of Wishes in
order to evaluate their prospects
• Trustees refused on grounds that the Letter of
Wishes was confidential and that disclosure
would cause family strife
Breakspear v. Ackland – Decision (1)
• Judge relies upon what he calls the Londonderry
Principle “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”.
• Flows from the Londonderry Principle that certain
classes of documents will generally not be ordered to be
disclosed – in particular, documents relating to or
revealing the reasons for trustees’ decisions on the
exercise of their powers and discretions
Breakspear v. Ackland – Decision (2)
• “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”
• A Letter of Wishes “is itself properly regarded
as confidential”
Breakspear v. Ackland – Decision (3)
• “… 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
administration of the trust, and the discharge of their
powers and directions”
• “The confidentiality which vests in a Letter of Wishes is
something given to the trustees for them to use on a
fiduciary basis. Once given to the trustees by the settlor,
the question of disclosure is one for the trustees (or the
court) and not the settlor”
Breakspear v. Ackland – The Result
• Thus, in general, it will often be appropriate for
a trustee to refuse disclosure of a Letter of
Wishes
• Generally, the Court can be expected not to
overturn a decision by the trustees not to
disclose in the absence of evidence of bad faith
or unfairness
• However, on the facts of Breakspear v. Ackland,
the English court ordered disclosure
Why?
• The trustees were intending to seek the
sanction of the court for a scheme of
distribution
• In doing so, the trustees would, in due course,
have disclosed the Letter of Wishes as a key
document relevant to the proposed distribution
• The risk of family conflict as a result of
disclosure was outweighed by the need to give
the family a proper opportunity to address the
court on the question of sanction
Some Conclusions
• Letters of Wishes are going to continue to
be particularly sensitive documents in the
hands of trustees
• There is no blanket rule against
disclosure to beneficiaries
• In some cases disclosure will be
appropriate and may be ordered if the
Court’s supervisory jurisdiction is invoked
Finally
• Questions
• Refreshments