The recent case of Blades v Isaac and another [2016] EWHC 601 (Ch) raises a number of interesting questions in relation to legal privilege, rights of beneficiaries to disclosure of information and costs in trust litigation.
Background
The Claimant in this case was the daughter of a testatrix who had created a discretionary trust by Will. The Defendants were the executors and trustees and were solicitors. The Claimant, her husband, her children and the testatrix’s cleaner were members of the class of objects of the discretionary trust. The Claimant’s sister, whose relations with the Claimant had become strained, was not within the class of beneficiaries. However, the testatrix had left a letter of wishes requesting that the sister should receive 5% of the estate. The trustees exercised their power under the trust to add the Claimant’s sister to the class of beneficiaries. Following this, they made distributions to all of the class of beneficiaries except the Claimant's husband.
From the outset of the administration of the estate, the Claimant had been unhappy with the trustees and had requested disclosure of a range of information, including a detailed breakdown of the estate and trust assets, which the trustees refused to provide. The trustees justified their refusal to disclose the information on the basis that the documents were confidential to the trustees and executors. The trustees were also aware of the difficult relationship between the two sisters and therefore had concerns about disclosing the information to one of them.
The trustees eventually sought counsel’s advice on their duty to disclose information to the Claimant. The Claimant instructed solicitors who requested a copy of the advice, arguing that privilege had been waived. The trustees refused to provide counsel's opinion to the Claimant and the Claimant commenced proceedings. After obtaining a second opinion from another barrister, the trustees did disclose the information that the Claimant had originally requested. The main reason for the claim therefore fell away. However, the issue of costs was left to be determined and the court considered the question of privilege.
Decision on Privilege
The High Court ruled that the opinion that had been obtained by the trustees was for the benefit of the trust rather than for the trustees personally. It had therefore been proper for it to have been paid for out of the trust funds. However, this meant that the opinion was a trust document and, like any other trust document, it could be made available to the beneficiaries if the Court so ordered. The Court ruled that in relation to such trust documents, there can be no legal privilege as between trustee and beneficiary.
Rights of Beneficiaries
The judge also briefly considered the right of the Claimant, as a beneficiary of the Will trust, to the information that had been requested, namely the estate accounts. The testatrix, by her Will, left her assets to be administered by her personal representatives. The personal representatives would then pass the assets to the legatees as trustees of the Will trust. The legatees could hold the personal representatives to account and could seek an inventory of the estate's assets and details of the costs charged to the estate by the personal representatives. The Claimant, as a beneficiary of the Will trust, could hold the trustees to account for what the trustees had received and for what they had done with the assets. However, the Claimant was not a legatee of the Will and had no right as a legatee to hold the personal representatives directly to account. In this case, the position was somewhat complicated by the fact that one of the defendant solicitors was the sole executor of the Will and also a trustee of the Will trust and the second defendant solicitor, a partner in the same firm, was co-trustee of the Will trust.
The alternative interpretation provided by the judge was that the trustees had an obligation to ensure that the correct assets had been paid over to them by the personal representative and to collect any assets that had not been paid over. The Claimant, as an object of the discretionary trust, had standing to complain of a breach of trust if they had failed to carry out their duty to check that the correct assets had been paid over and had failed to get in any assets not paid over. The Claimant equally should have standing to challenge the trustees with regards any possible overcharging by the personal representative's lawyers.
Neither of these interpretations was the subject of the arguments before the Court as the information had already been disclosed. However, the judge commented that these are two ways in which the court could order disclosure.
Decision on Costs
The Court considered the case of Re Buckton which sets out three categories of trust litigation as follows:
- Category one: proceedings brought by trustees or personal representatives seeking the guidance of the court as to the construction of the trust deed or Will
- Category two: proceedings which are justifiably brought for the same reason as in category one but which are brought by somebody other than the trustees or personal representatives
- Category three: proceedings where a beneficiary makes a hostile claim against the trustees or personal representatives
If the case falls under category one or two, costs are generally ordered to be paid out of the trust fund or estate. If the case falls under category three, the general rule as to costs applies so that the losing party pays the costs.
The Court decided to treat this case as if it fell into the second category so that the costs of both parties were paid out of the trust fund, in each case on the indemnity basis. This decision was based on the fact that, although the trustees had made an error in law in not providing disclosure to the Claimant initially, they had otherwise acted reasonably. They had obtained counsel's opinion and when the opinion was challenged, they had sought a second opinion. They had also suggested to the Claimant before she commenced proceedings that the trustees should apply to the Court for directions. If the Claimant had taken up that offer, the matter would have come before the Court as an application for directions not a hostile claim and the defendant trustees would have been entitled to their costs out of the trust fund. The judge saw no reason why this position should be altered by the Claimant's decision to commence proceedings.
The judge in this case also pointed out that there is an important distinction between cases where there has a been a breach of trust by the trustees which has caused loss to the trust fund and cases where, although the trustees may have been in breach of trust, no loss has been caused. A trustee who has not committed a breach of trust causing loss is not automatically deprived of an indemnity for costs, although they may be so deprived if the liability was not properly incurred.
Comment
The decision on privilege is worth noting. Trustees need to be aware of the context in which they are taking advice and the effect that this will have on privilege, particularly as between trustees and beneficiaries.
Trustees will also be interested to see the positive view taken by the Court of the fact that the trustees obtained counsel's opinion. Although counsel’s opinion turned out to be incorrect in this case, it seems likely that the Court would have taken a less sympathetic view of the trustees’ actions had they failed to seek counsel's opinion.
The case highlights the complexities of the interaction between the usual Civil Procedure Rules on costs and the case law on costs in trust cases.
Beneficiaries of Will trusts may also be interested in the judge's comments on the Claimant's rights to disclosure of the estate accounts.