The final word on disclosure of trust information to beneficiaries

Trusts

The Supreme Court in Erceg v Erceg [2017] NZSC 28 has confirmed the court’s important role in supervising trustee decisions to not disclose information to beneficiaries. In clarifying the court’s supervisory role, this decision should assist beneficiaries in holding trustees to account.

Erceg replaces the Privy Council decision of Schmidt v Rosewood Trust Ltd [2003] UKPC 26 as the leading case.

Is the court limited to reviewing the trustee’s discretion?

The most interesting aspect of the decision is the Supreme Court’s comments on the court’s powers.

The Court of Appeal held that the court’s supervisory jurisdiction is limited to reviewing the exercise of discretion by the trustee. Therefore, the court could only intervene in limited circumstances, where the trustee erred in law or principle, overlooked a relevant point, considered an irrelevant point, or made a decision that was plainly wrong.

The Supreme Court firmly disagreed. It explained that the court must exercise its own judgment whether disclosure ought to be made, after a careful assessment of a wide range of considerations.

Relevant factors to consider

The Supreme Court saw the starting point as a trustee’s obligation to administer the trust under the trust deed and the duty to account to beneficiaries. This is the basis on which a beneficiary will seek disclosure of trust documentation.

The Supreme Court set out a non-exclusive list of matters to consider – many of which were listed in Schmidt v Rosewood Trust Ltd:

  • The documents sought – each document (or class of documents) may need to be evaluated separately given that different considerations may apply to different documents.
  • The context for the request and the objective of the beneficiary in making the request – the case for disclosure will be compelling if meaningful monitoring of the trustee’s compliance with the trust deed could not occur without disclosure.
  • The nature of the interests held by the beneficiary seeking access – a relevant factor is the likelihood of the requesting beneficiary benefitting from the trust and proximity of the beneficiary to the trust.
  • Any issues of personal or commercial confidentiality – the court should recognise the need to protect confidential matters of a personal or commercial nature and any indications in the trust deed regarding confidentiality.
  • Any practical difficulties in providing the information – a factor that may weigh against disclosure is if the information would be difficult or expensive to generate or collate.
  • Do the documents sought disclose the trustee’s reasons for deciding? It is normally not appropriate to require disclosure of the trustee’s reasons for particular decisions.
  • The likely impact on the trustee and other beneficiaries if disclosure is made – the court should consider whether disclosure would have an adverse impact on the beneficiaries that would outweigh the benefit of disclosure to the requesting beneficiary. With a family trust, disclosure may embitter family feelings and the relationship between the trustees and beneficiaries. But non-disclosure may have a similar effect.
  • The likely impact on the settlor and third parties if disclosure is made.
  • Whether disclosure can be made while still protecting confidentiality – documents disclosed may need to be redacted.
  • Whether safeguards can be imposed on the trust documents – examples include undertakings and inspection by professional advisers only to ensure the documents are used for the purpose for which they were disclosed.

The Supreme Court confirmed there will be an expectation that basic trust information (such as trust accounts) will be disclosed to a close beneficiary who wants it. However, the appropriateness of disclosure will be fact specific. The greater the request, and the more remote the interest of the beneficiary, the greater the room for argument.

Standing of bankrupt

Last, the Supreme Court disagreed with the High Court’s finding that Mr Erceg lacked standing to bring the proceeding. The High Court held that his right to seek information vested in the Official Assignee on his bankruptcy. The Supreme Court clarified that the bankruptcy of a discretionary beneficiary does not affect his or her capacity to seek disclosure of trust information from the trustees or the court.