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Erceg v Erceg [2017] NZSC 28 - Trustees' disclosure requirements to beneficiaries

By Hayley Roberts - April 2018

Background

The current Trustee Act 1956 is silent as to whether beneficiaries are entitled to disclosure of particular trust information and documents.  When the law is not clear, the Courts determine what would have been intended by Parliament when passing that particular law.  This is exactly what has happened in the recent Supreme Court case Erceg v Erceg [2017] NZSC 28.

The appellant, Mr Ivan Erceg, was a class beneficiary of two trusts established by his late brother, Mr Michael Erceg.  At the time the trusts were wound up, in December 2010, Ivan was an undischarged bankrupt. Ivan did not receive a distribution from either trust.

Ivan requested certain trust documents be provided to him which the trustees refused to do.  The matter was then brought before the High Court, Court of Appeal and finally, the Supreme Court where a decision was reached regarding those trust documents.

Supreme Court decision

After the High Court finding that Ivan did not have standing due to being an undischarged bankrupt at the time the trusts were distributed, and the Court of Appeal finding that Ivan had standing to request trust documents, Ivan appealed to the Supreme Court.

The Supreme Court held that the Court has to exercise its supervisory judgment regarding disclosure to beneficiaries in the given circumstance.

The Court said that basic trust information should be disclosed to a close beneficiary, dependant on a number of factors.  It was not determined who would be considered a “close” beneficiary and this is likely to be different in every circumstance.

The Supreme Court established the following list of criteria for evaluating an application for disclosure:

  • The documents that are sought;
  • The reason the documents are being sought;
  • The nature of the interest held by the beneficiary seeking access;
  • Whether there is any practical difficulty in providing the information;
  • Whether the documents sought disclose the trustees reasons for decisions made by the trustees;
  • The likely impact on the trustees and other beneficiaries if disclosure is made;
  • Whether disclosure can be made while still protecting confidentiality; and
  • Whether safeguards can be imposed on the use of the trust documentation, if disclosed to the beneficiary.

The Court also noted that bankruptcy does not affect an individual's capacity to seek disclosure of trust information from either the Court or trustees of the trust to which they are a beneficiary.

The Court dismissed the appeal having determined that disclosure should not be ordered due to the potential threat to confidentiality, future litigation and lack of necessity.

Trusts Bill

The much anticipated Trusts Bill (the Bill), that has been in the pipeline for some time now, will re-master the current Trustee Act. The Bill is expected to incorporate elements of the Erceg finding.

The current Bill states that trustees will be required to disclose the following to beneficiaries:

  • Notification that they are a beneficiary of the trust;
  • Contact details of the trustees; and
  • That the beneficiaries are entitled to request information from the trustees (it will then be at the trustees discretion as to what information they disclose to that beneficiary).

Following on from the required disclosure above, the Bill sets out that trustees will then need to consider the following factors before disclosing trust information to the beneficiaries:

  • The nature of that beneficiary’s interest in the trust and the likelihood of the beneficiary receiving trust property in the future;
  • Whether the information is personally or commercially confidential;
  • The intentions of the settlor regarding disclosure;
  • The age and circumstances of the beneficiary and other beneficiaries of the trust;
  • The effect that disclosing the information would have on the beneficiary that is receiving that information;
  • The effect that disclosing the information would have on the trustees, other beneficiaries of the trust and third parties (for family trusts, the possible effect on family relationships will also need to be considered);
  • The practicality of disclosing the information to all beneficiaries (particularly in trusts with a large number of beneficiaries or unascertainable beneficiaries);
  • The practicality of imposing restrictions on the use of the information that is disclosed to the beneficiary;
  • The practicality of giving the information to the beneficiary in redacted form;
  • The nature and context of the beneficiary’s request; and
  • Any other factor that a trustee reasonably considers to be relevant in determining whether disclosure should be made.

How does this affect current trustees?

There has been no clear indication as to when the Trust Bill will be passed as legislation but the current Bill can be used as guide for current trustees regarding possible outcomes.  

Trustees should become well acquainted with the disclosure elements of the Bill and implement these as a matter of practice going forward.

Hayley is a Solicitor in our Asset Planning Team and can be contacted on 07 958 7472.