Analysis
The Acorn Foundation trust and the Independent Group trust (‘trusts’) were established by the late Michael Erceg (‘settlor’) in the early 2000’s. The appellant, who was a brother of the Settlor, was included within the classes of both discretionary and ultimate beneficiaries of each of the trusts. He was adjudicated bankrupt on 2 February 2010 and his estate vested in the Official Assignee under the Insolvency Act 2006. He was not discharged from bankruptcy until 12 May 2014 by which time the trusts had been wound up without any distribution being made to the appellant. Having unsuccessfully requested various trust documents from the respondents, who were the trustees of the trusts, he brought proceedings in the High Court on 5 September 2014 seeking, inter alia, an order requiring them to provide him with copies of those documents. The respondents opposed the application and counter-applied for summary judgment against the appellant; alternatively an order striking out his statement of claim. The hearing took place on 5 December 2014 and, in her judgment dated 27 March 2015, Courtney J dismissed the appellant’s application. She held that he had no standing to request disclosure of the trust documents because his right as a beneficiary to seek disclosure constituted ‘property’ which had vested on his bankruptcy in the Official Assignee. Further, but for the decision on standing, it was held that the court would not have ordered disclosure for a number of reasons; notably that the appellant had only raised concerns about the distributions; not about the running of the trusts. The appellant appealed.
Held (dismissing the appeal):
Contrary to the finding of Courtney J the status (or capacity) of the appellant as a beneficiary of the trusts gave him standing, which could not be altered or annulled by bankruptcy, an
this entitled him to call upon the trustees to account to the beneficiaries and, if necessary, to apply to the court to compel the trustees to carry out their duties of trust administration, including the disclosure of trust documents. It was not necessary to consider whether the beneficiary’s right to seek disclosure constituted ‘property’, still less to consider whether his rights as discretionary and ultimate beneficiary of the trusts were ‘property’.
However, no beneficiary had an entitlement as of right to disclosure of trust documents. A trustee should approach a request by a beneficiary for disclosure of the trust documents as one calling for the exercise of discretion in discharge of the fiduciary duty a trustee owes a beneficiary. This duty is sometimes described as ‘the core accountability of trustees to beneficiaries’. When the court was required either to review the trustees’ decision on a request for disclosure or to rule on an application for directions as to how the trustees should deal with a request for disclosure, it should approach the question as an incident of its supervisory function over trusts and trustees. The trustees’ exercise in discretion would require consideration of all the relevant circumstances and exclusion of any irrelevant circumstances. The court should not intervene unless satisfied that the trustees erred in law or principle, overlooked a relevant point, factored in an irrelevant point or made a decision that was plainly wrong. In this case, Courtney J had not taken into account any irrelevant consideration, nor overlooked any significant relevant point and her decision that the discretion would not have been exercised could not be said to be plainly wrong.
Obiter
The considerations for a trustee would depend upon the circumstances but the list set out in Schmidt v Rosewood trust Ltd was widely acknowledged as an excellent guide. Had the Court decided to order disclosure, it would have made orders on the following lines: (a) failing agreement, an independent person would be appointed by the Law Society; (b) the trustees would provide him with the trust deeds, relevant financial statements and resolutions; (c) the independent person would then report to the Court giving ‘yes’ or ‘no’ answers to the questions: (i) were any trust monies available for distribution to the final beneficiaries after all other payments and distributions have been made? (ii) were all distributions made to persons who were beneficiaries of the trusts? (iii) did the trustees consider whether to make any distribution to the Appellant? On the basis of that report the Court would have considered whether to order the trustees to make disclosure and, if so, of what and on what terms.
JUDGMENT FRANCE P: A. The appeal is dismissed. B. The appellant is to pay the respondents’ costs for a standard appeal on a band A basis with usual disbursements. C. Order that no person other than the parties can access the court file without the leave of a judge. D. Order prohibiting publication of facts …Continue reading "Erceg v Erceg & ors [2016] NZCA 7"