Introduction

In Roman mythology, Janus is the god of beginnings and endings. He is usually depicted as having two faces, one looking to the past and one to the future. Janus is said to have presided over the beginning and the end of wars: the doors to his temple were open in times of war, closed in times of peace. Trustees reading Stephen Moverley Smith QC and Andrew Holden's article, 'Too many cooks: Letters of wishes and the ongoing role of the settlor'1 could be forgiven for thinking that the doors of Janus' temple should remain permanently open. The authors describe as the 'orthodox position' that the settlor's status as the previous owner of trust property gives the settlor no more right to influence how that property is used than any other previous owner of property gifted to another. If it is correct that trustees should have no regard to the wishes of the settlor expressed from time to time after the date of settlement, then this would be a radical departure from current practice and would likely result in considerable conflict between settlors and trustees. This is, perhaps, especially so in the offshore world where letters of wishes are commonplace, frequently updated and are viewed by trustees as an important 'companion' to the trust deed.2 This article will argue that trustees, like Janus, must look to the past and the future, the settlor and the beneficial class, if they are to discharge their fiduciary duty. Letters of wishes (updated from time to time) are relevant considerations to which trustees should have regard and the question for trustees is to assess the proper weight to be attached to them. However, the very fact that the law of trusts has developed a concept of 'relevant considerations' is an indication of an era of more intense judicial review of trustee decision-making.

Categorization

Before delving into the argument as to the status of letters of wishes, it is important to acknowledge the debate that rages about different 'types' of letters of wishes. The clearest articulation of categorization is that found in Underhill and Hayton.3 The authors distinguish between 'legally binding', 'legally significant' and 'morally binding' letters of wishes.4 The first category is, as Moverley Smith and Holden note, 'effectively part of the terms of the trust'5 and there is a good argument that we should not further be concerned with this category. After all, a 'wish' is an expression of desire, not obligation.6 It is also doubtful that there is any real distinction between the categories of 'legally significant' and 'morally binding' letters. If the trustee has an obligation to take the settlors' wishes into account in decision-making, it does not seem to matter that the settlor has expressed those wishes as only 'morally binding'. The question for the trustee in each case is whether their decisionmaking is open to attack if they fail to take into account the expressed wishes of the settlor. How the settlor has expressed the wish may be relevant to the question of the proper weight to be attached to such an expression but seems to have little to do with whether or not there is an obligation to take it into account.

Relevant considerations

It is now firmly entrenched in authority that a trustee has a duty when making a decision to take into account relevant (and not irrelevant) considerations.7 This is so whatever the nature of the decision and therefore the question of what are, and what are not, 'relevant considerations' is equally important to the exercise of a dispositive discretion as it is, eg, to a decision as to investment. A decision taken in breach of this duty will be capable of attack. The language of 'relevant considerations' is a relatively recent addition to the judicial analysis of the duties of trustees in the English law of trusts and to the case law dealing with the scope of judicial review of trustees' decisionmaking. If we consider the articulation of trustees' duties in 1965 in Re Londonderry's Settlement,8 we see that Salmon LJ, in deciding that a trustee was not bound to disclose reasons for the exercise of a discretionary power, said this:

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 . . . the trustees and not the courts. So long as the trustees exercise this power with the consent of the persons call 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.9

By 1998, relying on the above dicta, Sir Richard Scott V-C in Edge v Pensions Ombudsman10 firmly injected into the law of trusts the language of public law when considering the decision-making of the Pensions Ombudsman in respect of the actions of the trustees of a pension fund. In a passage that was subsequently approved by Chadwick LJ in the Court of Appeal,11 Sir Richard Scott V-C said this:

[The Ombudsman] was entitled, and bound, to ask himself whether the trustees had taken a decision that was within their power to take. He was entitled, also, to question whether the trustees had taken into account irrelevant, improper or irrational factors or had come to a decision that no reasonable body of trustees could have come. But he was not . . . entitled to require the trustees to justify their decision in any other respect.12

Chadwick LJ expressly drew the analogy with the public law Wednesbury principles13 remarking that:

It seems to us no coincidence that courts, considering the exercise of discretionary powers by those to whom such powers have been entrusted (albeit in difference contexts), should reach similar and consistent conclusions; and should express those conclusions in much the same language.14

Inadequate deliberation

While the analogy with public law was expressly disapproved of in the Court of Appeal in Pitt v Holt,15 it is clear from the judgment of Lord Walker in the Supreme Court that a finding that a trustee has taken into account irrelevant considerations or failed to take into account relevant considerations (what Lord Walker referred to as 'inadequate deliberation' 16) can result in a finding that the trustee has been guilty of breach of fiduciary duty.17 This point was perhaps most clearly articulated by Lloyd LJ in the Court of Appeal (with whom Lord Walker expressly agreed): ''the trustees' duty to take relevant matters into account is a fiduciary duty, so an act done in breach of that duty is voidable''.18 It is important to note, however, that Lord Walker recognized the boundary between relevant and irrelevant considerations is not always easy to draw. He suggested that there is some margin for error before the Court will find that there has been a breach of fiduciary duty. He held that for a trustee decision to be vitiated, the inadequate consideration 'must be sufficiently serious as to amount to a breach of duty'.19 To adapt Lord Walker's phrase of 'inadequate deliberation', the duty of the trustee is to undertake 'adequate deliberation'. Trustees may take some comfort from judicial recognition that there is likely to be a very significant margin of appreciation into which the judiciary may be reluctant to interfere. Again, Lloyd LJ dealt with this aspect most fully when he stated that:

It is not possible to lay down any clear rule as to matters that trustees ought to take into account when considering the exercise of a power of advancement or some other dispositive discretionary power. Circumstances will differ a great deal from one trust to another, and even within one trust they may change from time to time according to the nature of the particular exercise that is under consideration.20

Wishes of a settler

Moving on from the general principles of 'adequate deliberation' to look more closely at letters of wishes in the context of the discharge of the trustee's duty, both Lord Walker in the Supreme Court and Lloyd LJ in the Court of Appeal in Pitt v Holt had interesting things to say. Lloyd LJ was not prepared to elevate the wishes of the settlor to a mandatory consideration. His view was that ''. . .wishes of a settlor may well be one thing that trustees should take into account''. 21 Lord Walker went further when he said ''the settlor's wishes are always a material consideration in the exercise of fiduciary discretions''.22 While it has recently been suggested in a Bermuda decision that a trustee had no legal obligation to have regard to a settlor's wishes,23 the better view seems to be that the settlor's wishes will be regarded as a relevant consideration in trustee decision-making.

On the question of whether there is any distinction to be drawn between settlor wishes expressed prior to, or at, the moment of settlement with those wishes expressed thereafter, Moverley Smith and Holden take the view that following Lord Walker's judgment in Pitt v Holt, ''. . . it appears now to be settled law (if it was not so before) that trustees are obliged to take into account the settlor's wishes expressed from time to time during the administration of the trust''.24 Lord Walker does not deal expressly with this timing issue and the basis for their conclusion on this point seems to be that the decision of Lightman J in Abacus Trust Co. (Isle of Man) v Barr25 was approved by Lloyd LJ in Pitt v Holt26 and that it is clear from Abacus v Barr that Lightman J considered trustees were under an obligation to ascertain the wishes of the settlor at the time the power was exercised. Abacus v Barr was a case in which the settlor wished the trustee to exercise a power of appointment as to 40% of the fund in favour of his children, but this was miscommunicated to the trustees as 60%. While Lightman J does appear to have been of the view that the trustees had an obligation to ascertain the wishes of the settlor at the time the power was exercised, the period of time on the facts of Abacus v Barr between the date of settlement and the date of the exercise of the power was only 9 days.27 It is not clear from the report in Abacus v Barr on which day the settlor expressed his wish that the trustees exercise the power of appointment. It is difficult, therefore, to regard Abacus v Barr as strong authority on this timing point and more difficult still to conclude that Pitt v Holt dealt with the timing issue at all.

Subsequent wishes

However, this examination of the facts in Abacus v Barr demonstrates a wider point with respect to timing and that is the artificiality of drawing a hard and fast line at the date of settlement. The 'date of settlement' is itself a complex proposition since many (if not most) discretionary trusts are settled with a nominal sum with the substantive assets being added thereafter. There is, therefore, in most cases more than one 'moment of settlement'. If we leave this point to one side, the logical conclusion from the proposition that only wishes of the settlor expressed in contemplation of or at the moment of settlement are 'relevant considerations' is that wishes expressed a short time after, but reasonably contemporaneously with, settlement should be disregarded as irrelevant considerations. Even if letters of wishes were viewed as tools of textual construction, then this insistence on composition at the precise moment of settlement would not seem to sit well with the modern approach to construction culminating in Rain Sky SA v Kookmin Bank28 and Marley v Rawlings.29 Of course we are not talking here about textual construction— letters of wishes are most commonly directed towards (and have their genesis in) broad discretions bestowed upon trustees, especially in the offshore trust. While the question can of course be whether an exercise of a power was within the scope of the power (what Lord Walker referred to in Pitt v. Holt as 'excessive execution' 30), it is more commonly whether an exercise of a power which was clearly within its scope can be challenged on the basis of 'inadequate deliberation'. When one views the question through the optic of 'relevant considerations' freed from the shackles of the rules of textual construction, it becomes clear that the timing of the expression of the settlor's wishes does not impact upon relevance but rather can (depending on the facts) have an impact on the proper weight to be accorded to them. This conclusion is not altered by the tantalizing caveat of Briggs J in Breakspear v Ackland that:

for the present purposes I am concerned with a wish letter which is substantially contemporaneous with the settlement itself. The question whether later wish letters have the same status is beyond the scope of this judgment.31

Questions of weight

Thus, letters of wishes written subsequent to the date of settlement have precisely the same status as a relevant consideration to which a trustee is entitled to accord appropriate weight. This is consistent with the typical form of a letter of wishes encountered in practice that expressly states that the settlor may revise his or her wishes from time to time.32 Even though settlors have divested themselves of title to their property and placed this in the hands of trustees, whether or not the settlor him or herself is a beneficiary of the trust, there is no logical reason why the views of the settlor as they develop and are expressed from time to time should not be one factor that the trustees should take into account. The trust is neither divorced from the dynamics of the family nor external forces that may significantly impact upon the extent or nature of family wealth. It would be impossible for the settlor to express at the moment of settlement his or her wishes for every such development and there is nothing inherently 'irrelevant' about these wishes over the life of the trust—quite the reverse. The authors of Lewin were quite right in their justification for the relevance of the wishes of the settlor (whether contemporaneous or subsequent) when they stated that:

In a conventional family trust the funds comprised in the settlement are the settlor's bounty . . . the trustees are the means that he has chosen to benefit the beneficiaries out of property of his own . . . so far as the trustees are given dispositive powers, they are to make choices which the settlor could have made for himself. Trustees therefore rightly give great weight to the settlor's wishes . . ..33

Conclusion

The danger for the trustee is perhaps not that they have regard to the settlor's wishes as expressed from time to time but rather that they pay too much attention to the views of the settlor (whenever expressed) and not enough to the beneficiaries. This is the question of weight, and Lord Walker in Pitt v Holt alluded to this when he (perhaps rather harshly) noted in the context of the offshore trust that ''. . . it may be that some offshore trustees come close to seeing their essential duty as unquestioning obedience to the settlor's wishes''.34 The optimist would conclude by saying that careful attention to relevance and weight should result in the trustee being able to keep the door of the temple closed in a time of peace with both the settlor and the beneficiaries. The realist, however, must recognize that the judicial casting of one aspect of the trustee's duty as being to take into account only relevant considerations and not to take into account irrelevant considerations is likely to see the law of trusts develop along a similar path as public law has since the Wednesbury decision in 1953.35

Footnotes

1.Stephen Moverley Smith QC and Andrew Holden 'Letters of Wishes and the Ongoing Role of the Settlor' (2014) 20 Trusts & Trustees, 20(7): 712–724.

2.As Kirby P put it in Hartigan Nominees Pty Ltd v. Ridge (1992) 29 NSWLR 405, 419.

3.Underhill and Hayton, Law Relating to Trusts and Trustees (18th edn, LexisNexis 2010).

4.ibid 56.47–56.57.

5.See Moverley Smith and Holden (n 1).

6.OED Online (March 2014, Oxford University Press)5http://www.oed.com/view/Entry/229511?rskey¼GGRaik&result¼14accessed 3 June 2014.

7. Pitt v Holt, Futter v Futter [2013] 2 A.C. 108.

8.[1965] Ch 918.

9.ibid 936.

10.[1998] Ch 512.

11.Edge v Pensions Ombudsman (C.A.) [2000] Ch 602, 627.

12. See (n 10) 536. For earlier formulations, see: In Re Hastings Bass [1975] 1 Ch 25, 41; Harris v Lord Shuttleworth [1994] I.C.R. 991, 999; Wild v Pensions Ombudsman [1996] O.P.L.R. 129, 135.

13. Associated Provincial Picture Houses Ltd. v Wednesbury Corporation [1948] 1 K.B. 223. Chadwick LJ quoted [(n 10) 628–30] at length from the judgment of Lord Greene MR at 228–31.

14. See (n 11) 628.

15. [2012] ch 132 at 164–65 (per Lloyd LJ) and 204–205 (per Mummery LJ).

16. See (n 7) 135.

17. ibid 139.

18. See (n 15) 179. Lord Walker agreed with Lloyd LJ, see (n 7) 138.

19. See (n 7) 139.

20. See (n 15) 176.

21. See (n 15) 114 (emphasis added).

22. See (n 7) 137 (emphasis added).

23. Stiftung Salle Modulable v Butterfield Trust (Bermuda) Limited [2014] SC (Bda) 14 Com (21 February 2014) at 315. Pitt v Holt (n 7), does not seem to have been cited.

24. Moverley Smith and Holden (n 1). (emphasis added).

25. [2003] Ch 409.

26. See (n 15) 175.

27. The settlement was dated 13 April 1992, whereas the challenged deed of appointment was dated 22 April 1992. See (n 25) 412.

28. [2011] 1 W.L.R. 2900.

29. [2014] 2 W.L.R. 213.

30. See (n 7) 135.

31. [2009] Ch 32, 36.

32. See the precedent wording suggested in Kessler and Sartin, Drafting Trusts and Will Trusts, A Modern Approach (10th edn, Sweet & Maxwell 2010) 123.

33. Lewin on Trusts (18th edn, 2008) 1039, paras 29-149–29-150.

34. See (n 7) 137–38.

35. See (n 13).

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.