Secret trusts: must you keep a secret?

James Brown and Mark Pawlowski consider whether a secret trustee is under an obligation not to disclose the terms of a secret trust

A fully secret trust is created where a testator (A) leaves property by will to B on the face of the will for his own benefit, but during the testator's lifetime he has informed B that the property is not for him but for C and B promises to carry out the testator's instructions.

In these circumstances, equity will enforce the trust in order to prevent a notional fraud on the part of B (the secret trustee) in keeping the property for himself contrary to the wishes of the testator and the expectations of C, (the secret beneficiary): McCormick v Grogan (1869) LR 4 HL 82. The trust enables the testator to bypass the formality requirements contained in the Wills Act 1837.

Now let’s consider the following scenario. A is a wealthy married celebrity, who has had a long-term clandestine affair with C, leaves £100,000 in his will to B who agrees to hold the money on a fully secret trust for C after A's death. B decides, contrary to A's wishes, to reveal the terms of the trust and sell the details to a newspaper for a large sum of money. Does A have any remedy against B in these circumstances?

Equitable obligation

The key requirements of a fully secret trust are: (1) communication of the testator's intention to the secret trustee; (2) the secret trustee's promise to carry out the testator's intention; and (3), on the faith of the promise, the testator either makes the disposition in favour of the secret trustee or leaves an existing disposition unrevoked or makes no disposition. The secret trustee's obligation is to make some form of inter vivos transfer of the property to the secret beneficiary.

Significantly, the details of the trust must also be communicated and accepted by him during the testator's lifetime. The secret trustee then holds the property bound by an equitable obligation to comply with the trust’s terms.

Breach of confidence

As we have seen, the secret trustee must comply with the terms including a duty to keep the testator's instructions confidential. If the trustee discloses the trust, this will give rise to a breach of his obligation and a breach of confidence.

For the claim to be successful, it must be established that: (1) the information has the necessary degree of confidence about it; (2) the information was provided in circumstances importing an obligation of confidence; and (3) there was an unauthorised use or disclosure of that information: see, Coco v AN Clark (Engineers) Ltd [1969] RPC 41.

The duty that the confidence should be preserved may be outweighed by some other public interest factor which favours use or disclosure. Hence, the additional element that the court must balance the public interest in maintaining confidentiality against the public interest favouring use or disclosure see, A-G v Observer Ltd [1990] 1 AC 109.

Clearly, if B had merely threatened, in breach of confidence, to reveal the terms of the trust, this would have triggered equity's intervention in the form of an injunction and (possibly) the appointment of a new trustee in place of B.

Confidential information

Per Campbell v MGN Ltd [2004] UKHL 22, the tort of misuse of private information is focused on: "the protection of human autonomy and dignity - the right to control the dissemination of information about one's private life.” 

A two-stage test is used to consider whether there is a valid claim for misuse of private information: 

·        The threshold test means the claimant must have a reasonable expectation to privacy in relation to the confidential information. The word "misuse" means simply the wrongful disclosure, or threatened disclosure, of personal information to the world at large. However, a misuse claim may be brought in respect of information disseminated less widely if that would unjustifiably interfere with the claimant's right to respect for privacy.

·        There is also a balancing test where the right to a private life needs to be considered against others’ rights, such as being in the public interest and the right to freedom of expression under Article 10 of the European Convention on Human Rights. Here again, the court needs to determine the correct balance in each case in relation to the right to a private and family life with the right to freedom of expression based on the circumstances of each case.

Undoubtedly, the testator may have a successful claim against the secret trustee for disclosure of information relating to the secret trust which, in the circumstances, there was a reasonable expectation to privacy. The balancing exercise which the court is required to undertake may prove more problematic, since the revelation of the testator's affair with C may be in the public’s interest giving rise to the defence of freedom of expression.

The nature of the exercise

In Reid v Price [2020] EWHC 594 (QB), Warby J suggested the exercise of quantifying equitable compensation for breach of confidence was essentially the same for claims in tort involving misuse of confidential information.

His lordship also said the nature of the information disclosed and the degree of loss of control should bear on the court's assessment of damages; the more intimate the information and the more extensive the disclosure, the greater the award.

In the earlier case of Gulati v MGN Ltd [2015] EWCA 1291, Mann J concluded information about matters internal to a relationship would be treated as private and disclosures which disrupted a relationship were likely to be treated as a serious infringement deserving substantial compensation.

The appropriate compensation seemingly depends on the nature of the information, its significance as private information and the effect on the victim of disclosure. It is no defence to a claim for misuse of private information that the information in question is true. Moreover, while both breach of confidence in equity and the tortious action for misuse of private information may be pleaded in the alternative, the claimant will not be entitled to recover damages for the same loss twice.

The nature of the loss

General damages for misuse of private information can be awarded for injury to feelings, loss of the right to control one's own information and damage to reputation. The testator will be able to claim under these heads given that disclosure will reveal his affair with C. In addition, given that B has used the confidential information in order to obtain a monetary gain, the court would, no doubt, order B to disgorge the money received by means of an account of profits.

Normally, however, where the secret trustee has not divulged the testator's instructions for monetary reward, it is difficult to see what loss the testator will have suffered (other than potentially injury to feelings and reputation). 

The only other conceivable basis for recovery would be the value of a notional reasonable agreement between the parties to buy a release from the testator's rights of confidentiality under the secret trust: see, Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798. Yet in Marathon Asset Management LLP v Seddon [2017] EWHC 300, the High Court rejected a claim for Wrotham Park damages where, although the defendants had breached their contractual and common law duties of confidence by taking the claimant’s confidential documents, they had not actually used those documents and/or the confidential information contained therein.  

The misuse of the confidential information did not cause the claimant to suffer any loss, or conversely, result in the defendants making any financial gain. The court concluded that there was no reasonable party who would have negotiated a ‘licence fee’ to permit the defendants to do what they had done. It is doubtful whether a court would be minded to apply Wrotham Park damages to a straightforward case involving the disclosure of a testator's instructions regarding a secret trust where there was no loss to the testator or gain to the secret trustee.

It is doubtful whether the secret trustee's disclosure extends to any actionable loss suffered by C in our scenario. If the testator changes his mind and revokes the trust as a result of the disclosure of the trust, the secret beneficiary, it is submitted, suffers no loss because his/her interest under the trust does not arise until after the trust is constituted (i.e., on the testator's death). Until then, the testator is free to revoke the trust and the secret beneficiary has no expectation of actual inheritance.

James Brown is a barrister and reader in law, School of Law, Aston University 

Mark Pawlowski is a barrister and professor emeritus of property law, School of Law, University of Greenwich.