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Disclose and explain – or else give up the put up or shut up

In a judgment recently handed down in the High Court case of Parsons & Anor v Reid & Anor [2022] EWHC 755 (Ch), Master Clark considered the court’s jurisdiction to make a so-called “put-up or shut-up order” in respect of an intimated breach of trust claim. Master Clark further considered what disclosure and additional information would be required of the parties before such an order could be granted.

The case arose following the death of Mr William Reid, whose residuary estate was left on full discretionary trusts. Mr Reid’s daughter, Judith Shaw, objected to certain distributions made and proposed to be made by the trustees to her brother and subsequently wrote a letter of claim challenging the propriety of what the trustees had done. Not having been served with a claim in the eight months that followed, the trustees applied for a “put up or shut up order” from the court – absolving them of any risk of a claim from Ms Shaw – prior to making final distributions.

Ms Shaw argued this amounted to a category two Public Trustee v Cooper blessing application and should therefore require full disclosure and witness evidence to enable the court to make such an order, as it would have the effect of extinguishing her future right to challenge the distributions. The trustees argued that this was not a blessing application and therefore such disclosure and witness evidence was not required.

Master Clark ordered that the disclosure and witness evidence proposed by Ms Shaw was necessary:

  1. Before effectively preventing Ms Shaw from bringing her claim, the limitation period for which would not expire for some time, the court would have to consider whether the claim itself was insubstantial, remote or speculative. This requires an examination of its merits and material relevant to those merits.
  1. The court would need to be satisfied that it was fully informed before making the order because it would extinguish the trustees' liability concerning any subsequent distribution, noting that "full disclosure is the price to be paid by the claimants for the exoneration that they seek". Master Clark determined that the beneficiary must be put in no worse position than if the trustees were in fact seeking a blessing application, where full disclosure of all relevant matters would be required.
  1. Although trustees exercising a discretion are not in general required to disclose their reasons for taking a particular decision (Re Londonderry’s Settlement; Schmidt v Rosewood Trust Limited), where the exercise of that discretion is challenged, the trustees will be required to give disclosure as to the validity of their reasons, information about those reasons, and can be cross-examined at trial about them.

Whilst it is relatively common for trustees to have their decisions challenged by beneficiaries, reported decisions on “put up or shut up” orders are unusual, so the judgment is likely to be influential and widely relied on by parties seeking to prevent an order of this type being made. 

The decision may also be seen as part of the growing trend of the court making clear that it will not tolerate being used as part of a rubber-stamping process for trustees seeking to override the concerns of disgruntled beneficiaries. Rather, requests for orders with the effect of extinguishing trustee liability, and the rights of a beneficiary to challenge a trustees’ actions, will be subject to genuine scrutiny through a full disclosure process.

... full disclosure is the price to be paid by the claimants for the exoneration that they seek

Tags

litigation, private client

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