B e f o r e :
LORD JUSTICE HARMAN LORD JUSTICE DANCKWERTS
and
LORD JUSTICE SALMON
In the matter of the Trusts of a Settlement dated the 5th December 1934 and made between the Seventh Marquess of Londonderry and others.
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HENRY PEAT
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and others Plaintiffs
Appellants
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and
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LADY HELEN MAGLONA WALSH
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Defendant Respondent
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(Transcript of the Shorthand Notes of The Association of
Official Shorthandwriters Ltd., Room 392,
Royal Courts of Justice and 2, New Square, Lincoln's Inn, London, W.C.2.)
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MR E.I. GOULDING, Q.C. and MR E.G. NUGEE (instructed by Messrs Herbert Oppenheimer, Nathan & Vandyk) appeared as Counsel for the Appellants.
MR R.W. GOFF, Q.C. and MR A.C. SPARROW (instructed by Mr P.R. Kimber) appeared as Counsel for the Respondent.
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HTML VERSION OF JUDGMENT
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Crown Copyright ©
LORD JUSTICE HARMAN: I have found this a difficult case. It raises what in my judgment is a novel question on which there is no authority exactly in point although several cases have been cited to us somewhere near it. The Court is really required here to resolve two principles that come into conflict, or at least apparent conflict. The first is that, as the defendant beneficiary admits, trustees exercising a discretionary power are not bound to disclose to their beneficiaries the reasons actuating them in coming to a decision. This is a long standing principle and rests largely I think on the view that nobody could be called upon to accept a trusteeship involving the exercise of a discretion unless, in the absence of bad faith, he were not liable to have his motives or his reasons called in question either by the beneficiaries or by the Court. To this there is added a rider, namely, that if trustees do give reasons, their soundness can be considered by the Court. Compare the observations of Lord Justice James in Exparte Penney, Law Reports, 8 Chancery Appeals, p.446, on the analogous position of directors.
It would seem on the face of it that there is no reason why this principle should be confined to decisions orally arrived at and should not extend to a case, like the present, where owing to the complexity of the trust and the large sums involved, the trustees, who act subject to the consent of another body called the appointors, have brought into existence various written documents including, in particular, agenda for and minutes of their meetings from time to time held in order to consider distributions made of the fund and its income. It is here that the conflicting principle is said to emerge. All these documents, it is argued, came into existence for the purposes of the trust and are in the possession of the trustees as such and are, therefore, trust documents, the property of the beneficiaries, and as such open to them to inspect.
A short statement will suffice to make the matter intelligible. The Seventh Marquis of Londonderry in the year 1934 settled certain Colliery shares, now represented by other investments, by vesting them in trustees, now the plaintiffs in the suit. The corpus of the trust fund was settled upon a discretionary class of descendants of the settlor, a class now closed and at present consisting of 22 persons, of whom the defendant is one. The power of selection must be exercised during the lifetime of the last survivor of the class and in default of appointment there is a trust for the statutory next of kin of the settlor if he had died at the date of the death of the last survivor of the class. In the meanwhile and pending distribution of the capital, income is distributable on a discretionary basis among the members of the class and in default, as the trusts at present stand, for the children of the settlor now living, of whom the defendant is one. She is thus an object of the discretionary powers to distribute both income and capital and has also an interest in income, though not in capital, in default of appointment.
The trustees have from time to time exercised their powers over both income and capital and, in particular, at the end of 1962 and early in 1964 determined to distribute the remaining capital in various shares among members of the class. The defendant was dissatisfied with the amount proposed to be distributed to her and made representations to the trustees through their solicitors for an increment, which was declined after the defendant's representations had been considered, but she was not willing to let the matter rest and employed a solicitor who in November 1963 demanded the disclosure of five classes of documents with the object of scrutinising the trustees' reasons and motives and in order presumably to organize some kind of attack upon them. The categories are set out in the trustees' solicitors' letter of the 12th November, 1963:
"(a) Minutes of the trustees' meetings; (b) Original appointments made by the trustees; (c) Correspondence between the trustees and appointors and beneficiaries; (d) Trust accounts; (e) Correspondence between my father and my firm on the one hand and the other trustees and appointors on the other".
The writer is Lord Nathan, the present solicitor to the trustees. His father was till he died in 1963 a member of the same firm and also one of the appointors. Of these classes, two, namely, (b) and (d), were disclosed, but this did not satisfy the defendant and her advisers and eventually in January 1964 the trustees issued this originating summons asking for directions as to their obligations as trustees of the settlement. The learned Judge, holding himself constrained to do so by authority, made an order in the terms of the summons which reads as follows:
"Declare that the plaintiffs as trustees",
and so forth,
"are bound to disclose to the defendant at her request the following documents: (a) The minutes of the meetings of the trustees of the said settlement; (b) Agenda and other documents (if any) prepared for the purposes of the meetings of the said trustees or otherwise for the consideration of the trustees; (c) Correspondence relating to the administration of the trust property or otherwise to the execution of the trusts of the said settlement and passing between (i) the individuals for the time being holding office as trustees of or appointors under the said settlement; (ii) the said trustees and appointors or any of them on the one hand and the solicitors to the trustees on the other hand; (iii) the said trustees and appointors or any of them on the one hand and the beneficiaries under the said settlement on the other hand".
From this order the trustees appeal.
This appeal, as it seems to me, is an irregularity. Trustees seeking the protection of the Court are protected by the Court's order and it is not for them to appeal. That should be done by a beneficiary, but though one of the trustees is in fact a beneficiary, he has not appeared here in that capacity and there has been no argument from anyone beneficially interested except the defendant. Under the circumstances the Court is in some embarrassment. Three courses are open. One, to dismiss the appeal; second, to discharge Mr Justice Plowman's order and make no order on the summons, and, thirdly, to attempt the difficult task of defining, without any concrete instances to help, the duty of trustees placed as these are. In truth, this kind of question ought to be raised in an action where issues are before the Court and consideration of relevance can be given. It is almost impossible satisfactorily to define the obligations of the trustees in the air. On the whole, however, in mercy to the parties, and having heard argument over more than two days, we have decided to attempt an answer, though we are not satisfied that we shall cover all the points. The learned Judge, though he felt the strength of the trustees' submission that it was undesirable to wash family linen in public which would be productive only of family strife and also odium for the trustees and embarrassment in the performance of their duties, felt constrained by a decision of Vice-Chancellor Kindersley in Talbot v. Marshfield, reported in (among other places) 2 Drewry & Smale, p.549. It now appears, however, in the light of documents obtained from the Record Office and the other reports of the case, notably in 13 Weekly Reporter, p.885 and Law Reports, 4 Equity, p.661, that this case was not at all in point. It was an action by beneficiaries against trustees who had a discretionary power, by making advancements to the tenants for life, to deprive the remaindermen. The matter came on first as a motion for an order on the trustees to pay into Court. In the course of the hearing of that motion, the trustees stated their reasons for the action they proposed to take and were cross-examined. The Court refused to order payment into Court, whereupon the trustees distributed and the action proceeded as an action to administer the estate upon the footing of wilful default. There was an application for discovery and it was upon the hearing of this application that Vice-Chancellor Kindersley gave his decision. He ordered the trustees to disclose a case to counsel and opinion taken by the trustees before the action was started and also a number of letters showing the trustees' intentions and their action in distributing other parts of the fund.
The case and opinion were, of course, trust papers, having come into existence ante litem motam. Counsel was advising the trustees as to their rights and duties and every beneficiary must be entitled to see advice of that sort. It is paid for out of the trust money and is the property of the beneficiaries. As to the letters, the trustees' objection seems to have been that as they were with beneficiaries of other shares in which the plaintiff was not interested, they were not relevant and need not be disclosed. This was overruled, as is not surprising, for the action was an action to administer the estate and the dealings of the trustees with all the shares were called in question. No point was taken that the trustees' exercise of their discretion was confidential. They had in fact already been cross-examined about it. I find nothing in this decision which helps us here.
Apart from this, the defendant relied on certain observations in O'Rourke v. Darbishire (1920, Appeal Cases, p.58l). The decision was that the plaintiff was not entitled to the production of what were called the "trust documents", and at p.6l9 I find Lord Parmoor making this observation:
"A cestui que trust, in an action against his trustees, is generally entitled to the production for inspection of all documents relating to the affairs of the trust. It is not material for the present purpose whether this right is to be regarded as a paramount proprietary right in the cestui que trust, or as a right to be enforced under the law of discovery".
Lord Wrenbury at p.626 says this:
"If the plaintiff is right in saying that he is a beneficiary, and if the documents are documents belonging to the executors as executors, he has a right to access to the documents which he desires to inspect upon what has been called in the judgments in this case a proprietary right. The beneficiary is entitled to see all the trust documents because they are trust documents and because he is a beneficiary. They are in a 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. No question of professional privilege arises in such a case. Documents containing professional advice taken by the executors as trustees contain advice taken by trustees for their cestuis que trust, and the beneficiaries are entitled to see them because they are beneficiaries".
General observations of this sort give very little guidance, for first they beg the question what are trust documents, and secondly their Lordships were not considering the point here that papers are asked for which bear on the question of the exercise of the trustees' discretion. In my judgment category (a) mentioned in the notice of appeal, viz. the minutes of the meetings of the trustees of the settlement; and part of (b) viz. Agenda prepared for trustees' meetings, are, in the absence of an action impugning the trustees' good faith, documents which a beneficiary cannot claim the right to inspect. If the defendant is allowed to examine these, she will know at once the very matters which the trustees are not bound to disclose to her, namely, their motives and reasons. Trustees who wish to preserve their rights in this respect must either commit nothing to paper or destroy everything from meeting to meeting. Indeed, if the defendant be right, I doubt if the last course is open, for she must succeed, if at all, on the ground that the papers belong to her, and if so, the trustees have no right to destroy them.
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. Again, if one of the trustees commits to paper his suggestions and circulates them among his cotrustees, or if enquiries are made in writing as to the circumstances of a member of the class, I decline to hold that such documents are trust documents the property of the beneficiaries. In my opinion such documents are not trust documents in the proper sense at all. On the other hand, if the solicitor advising the trustees commits to paper an aide-memoire summarising the state of the fund or of the family and reminding the trustees of past distributions and future possibilities, I think that must be a document which any beneficiary must be at liberty to inspect. It seems to me, therefore, that category (b) in the notice of appeal embraces documents on both sides of the line.
As to (c), which is:
"Correspondence relating to the administration of the trust property or otherwise to the execution of the trusts of the said settlement and passing between (i) the individuals for the time being holding office as trustees of or appointors under the said settlement, (ii) the said trustees and appointors or any of them on the one hand and the solicitors to the trustees on the other hand; (iii) the said trustees and appointors or any of them on the one hand and the beneficiaries under the said settlement on the other hand",
I cannot think that communications passing between individual trustees and appointors are documents in which beneficiaries have a proprietary right. On the other hand, as to category (ii), in general the letters of the trustees' solicitors to the trustees do seem to me to be trust documents in which the beneficiaries have a property. As to category (iii), I do not think letters to or from an individual beneficiary ought to be open to inspection by another beneficiary. Thus I think the Judge's order went too far, but it is very difficult to frame a declaration which will not cut down the rights of the beneficiaries too much. I would propose that we should discuss this matter after my brethren have given their opinions on the matter.
I do not cite further cases because I do not find any of them touch the point here at issue. There is a passage in the late Mr Harry Withers' very learned book on Reversions which purports to deal with this matter and includes this phrase:
"There must be disclosed all letters between the trustees and other beneficiaries".
This, I think, goes too far and the case of Tugwell v. Hooper (10 Beavan, p.348), cited in support of it, is merely a case about professional privilege and seems to me irrelevant. The same is true of Re Postlethwaite (35 Chancery Division, p.722).
I should add that very different considerations apply when it comes to a question of discovery in an action where a beneficiary is impeaching the validity of the trustees' actions.
I will return to the question of the exact form of relief we should give when my brethren have expressed their opinions.
LORD JUSTICE DANCKWERTS: I agree with the judgment which has just been delivered by my Lord and I do not differ from the observations which he has made in regard to the different classes which have been introduced in the notice of appeal. I agree with him that the matter has arisen before us in a most unsatisfactory manner. It is one thing to give directions whether particular documents in the case should be disclosed by the trustees or not: it is quite another to give the trustees directions in general terms which admit of great doubt and may be thoroughly misleading.
That brings me to the question of the authorities which have been cited to us. I find them of very little assistance. Talbot v. Marshfield obviously was a case which pursued a tortuous and very unusual course and the difficulties which we have discussed were never really faced in that case at all. That I find of no help.
As regards O'Rourke v. Darbishire, it is quite a simple matter to make general observations on the right of beneficiaries to inspection of trust documents, but it does not carry you any further until you know what is meant by "trust documents". For instance, one of the definitions of trust documents which was suggested seems to me quite hopeless. It was suggested that trust documents included everything in the trustees' hands as such. That will cover practically everything that reaches the trustees in their official capacity, from advertisements for pink pills to blackmailing letters from people who think they have a grudge against the trustees. That does not solve our problem in the least.
It seems to me it would have been far better that the matter should have been left until an action were started by a beneficiary who claimed to have a right to see particular documents and the Court would fairly face the problem whether the particular documents were ones which the trustees were bound to disclose to a particular beneficiary.
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. Of course, if a case is made of lack of bona fides, that is an entirely different matter. In that case I agree it becomes necessary to examine exactly what has happened because that is in an action and not in a theoretical application for directions, as the present case appears to me to be. 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.
For these reasons, therefore, it seems to me there must be a very restricted application of the observation that beneficiaries are entitled to see all trust documents. The matter must be one which is subject to special circumstances and the right to disclosure cannot apply to all trust documents.
I agree, therefore, with the Judgment which has been delivered.
LORD JUSTICE SALMON: The defendant beneficiary undoubtedly believes that she has been harshly treated by the plaintiff trustees. She considers that they should have appointed larger sums to her under the settlement than they have in fact appointed. It is not unusual for a disappointed beneficiary to persuade herself that she has a real grievance. Whether or not there is any justification for the present defendant's view, I do not know and have no means of knowing. Whether or not the Court, if it knew all the facts known to the trustees, would have acted as they did, again I do not know - nor is it material. The settlement gave the absolute discretion to appoint to the trustees and not to the Courts. So long as the trustees exercise this power with the consent of persons called appointors under the settlement and exercise 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: Re Beloved Wilkes Charity, 3 Macnaughton & Gordon, p.440: Ex parte Penney, Law Reports, 8 Chancery Appeals, p.446. Nothing would be more likely to embitter family feelings and the relationship between the trustees and members of the family were the 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.
Together with the rule enunciated in the authorities to which I have referred marches the rule no less firmly established that beneficiaries have a proprietary interest in, and a right to see, all trust documents: O'Rourke v. Darbishire, 1920 Appeal Cases, p.581. The problem which arises in the present case is to reconcile these two rules — a problem which apparently the Courts have never before been called upon to solve. I agree with the solution proposed by my Lords, namely, that all parts of any trust documents (if they are trust documents, and I will refer to this point again presently) which contain information to which the beneficiary is not entitled should be covered up before being shown to the beneficiary. It would need the clearest authority to persuade me that whilst trustees are not compelled to disclose their reasons or any information which might affect their reasons so long as nothing is put on paper, yet once the reasons or the information are reduced to writing, the writing must be disclosed to the beneficiaries. There is no such authority and I would expect to find none, for if it existed it would in my view be entirely contrary to reason and common sense.
Talbot v. Marshfield, 2 Drewry & Smale, p.549, which the learned Judge mistook for such an authority, has been shown by later researches of counsel to be a very different case. The point that trustees are not obliged to disclose their reasons was never taken in that case. Nor could it have been, since the trustees (without objection) had already been cross-examined about the reasons for the exercise of their discretion before the summons relating to discovery of documents was heard. Moreover, the bona fides of the trustees was the main issue in that case and the documents in question were clearly relevant to that issue.
The position is quite different where the beneficiary seeks disclosure of documents from the trustees in the air, as in this case, from the position where the beneficiary seeks discovery of documents in an action in which allegations are being made against the bona fides of the trustees. If the documents in question are in the possession or power of the trustees and are relevant to the issues in the action, they must be disclosed whether or not they are trust documents. In some instances, however, the fact that they are trust documents may nullify the privilege that would otherwise exist, as for example if the document consists of counsel's opinion taken before the issue of the writ, clearly the beneficiary is entitled to see any opinion taken on behalf of the trust. In the present case there is no suggestion of any kind, and certainly not a shred of evidence, that the trustees acted otherwise than with the utmost propriety. In my judgment Talbot v. Marshfield has very little, if anything, to do with the case we are now considering.
There is another possible approach to the present case. The category of trust documents has never been comprehensively defined. Nor could it be - certainly not by me. Trust documents do, however, have these characteristics in common: (l) They are documents in the possession of the trustees as trustees; (2) they contain information about the trust which the beneficiaries are entitled to know; (3) the beneficiaries have a proprietary interest in the documents and, accordingly, are entitled to see them. If any parts of a document contain information which the beneficiaries are not entitled to know, I doubt whether such parts can truly be said to be integral parts of a trust document. Accordingly, any part of a document that lacked the second characteristic to which I have referred would automatically be excluded from the document in its character as a trust document.
I agree with my Lords that the appeal should be allowed.
[26 November 1964] The court made the following form of order—
Upon motion on 29 and 30 October 1964, 2 November 1964, and this day made unto this court by counsel for the trustees by way of appeal from so much of the order herein of Justice Plowman made on the determination of question 1 of the originating summons herein on 30 April 1964, as declared that the trustees were bound to disclose to the defendant at her request the following documents (so far as they might be in the trustees' possession):
(a) the minutes of the meetings of the trustees of the settlement,
(b) agendas and other documents (if any) prepared for the purposes of the meetings of the trustees or otherwise for the consideration of the trustees,
(c) correspondence relating to the administration of the trust property or otherwise to the execution of the trusts of the settlement and passing between
(i) the individuals for the time being holding office as trustees of or appointors under the settlement,
(ii) the trustees and appointors or any of them on the one hand and the solicitors to the trustees on the other hand,
(iii) the trustees and appointors or any of them on the one hand and the beneficiaries under the settlement on the other hand.
For an order that the said order (so far as aforesaid) might be set aside and that it might be declared that the trustees as aforesaid were bound to disclose to the defendant at her request the documents referred to in paragraphs (a) (b) and (c) (ii) aforesaid (so far as they might be in the trustees' possession as such trustees) so far only as they related to the ownership, management or administration of any property vested in the trustees upon the trusts of the settlement but were not bound to disclose to the defendant any or any part of the said documents relating to 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 relating to their reasons for any particular exercise of such powers nor any of the documents referred to in paragraphs (c) (i) or (c) (iii) aforesaid.
And upon hearing counsel for the trustees and for the defendant, and upon reading the said order, order that so much of the said order dated 30 April 1964, as aforesaid be discharged, and declare that without prejudice to any right of the defendant to discovery in separate proceedings against the trustees and subject to any order the court may think fit to make in particular circumstances the trustees as trustees of the settlement are not bound to disclose to the defendant any of the following documents (that is to say)
(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 said trustees and appointors or any of them on the one hand and the beneficiaries under the settlement on the other hand, and
(4) minutes of meetings of the 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 material upon which such reasons were or might have been based: provided always that the trustees are bound to disclose to the defendant at her request any written advice from their solicitors or counsel as to the manner in which the trustees are in law entitled to exercise such powers.
And order that it be referred to the taxing master to tax the costs on the common fund basis of the trustees and the costs of the defendant occasioned by this appeal, and order that such costs when taxed be respectively retained and paid by the trustees out of the funds held by them upon the trusts of the said settlement, and this court doth not think fit to give leave to the defendant to appeal from this order.
Liberty to apply to the High Court in particular circumstances as aforesaid.
Order: Appeal allowed with costs on a common fund basis to appellant trustees and party and party costs to the respondent out of the trust fund. Leave to appeal to House of Lords refused.
