What information can a discretionary beneficiary of a trust request from the trustees? If the beneficiary has been bankrupted, does that mean they no longer have personal rights to request information? The Supreme Court has now expressed its view on these issues and has upheld the earlier Court of Appeal decision. However, the Supreme Court’s judgment outlined some principles in relation to disclosure that are different from those set out by the Courts below in the earlier judgments and will be important for future trustee deliberations when faced by requests for information.
The Supreme Court concluded that due to the exceptional circumstances of this case disclosure would not be in the interests of the beneficiaries as a whole.
The relevant trusts were settled by the appellant’s brother, the late Michael Erceg. The Acorn Foundation Trust was settled in 2004 and the Independent Group Trust was settled in 2002. Michael Erceg died in a helicopter crash in 2005. Shares in Independent Liquor (NZ) Limited (ILNZ), a successful business, were transferred to the trusts prior to Michael Erceg’s death. Both trusts were wound up in December 2010. Ivan Erceg was not a named beneficiary of either trust and did not receive distributions from either trust. He was, however, one of a class (among a number of classes) of discretionary and final beneficiaries of both trusts.
Ivan Erceg, the appellant, sought extensive disclosure, requesting that the trustees be required to provide nine categories of documents. The request involved the inevitable disclosure of confidential information about the operation of the trusts, the business transactions they had entered into, the identity of the beneficiaries, what beneficiaries had received by way of distributions from each trust and the trustees’ reasons for decisions they had made.
The trustees refused his request after which, in September 2014, Mr Erceg began proceedings that were first heard in the High Court, which dismissed his claim. That decision was subsequently upheld by the Court of Appeal. Mr Erceg then appealed the Court of Appeal decision The approved question was “Should the conclusion that disclosure not be made/required be set aside?”
This Court had to resolve two issues in the appeal. The first and primary issue was whether an order requiring the trustees to disclose to Ivan Erceg some or all of the documents to which he sought access should have been made.
A secondary issue was whether Ivan Erceg had standing to bring the claim, considering that he was an undischarged bankrupt at the time the trusts were wound up. Although he has since been discharged, the bankruptcy has not been annulled.
High Court and Court of Appeal decisions
In the High Court Courtney J dismissed Ivan Erceg’s application on the basis that he did not having standing to bring the claim. She found that Ivan Erceg’s interest as a final beneficiary and his right to seek information in his capacity as a discretionary beneficiary were property for the purposes of the Insolvency Act 2006 and were vested in the Official Assignee on his bankruptcy. As the bankruptcy had not re-vested in the appellant he did not have standing to bring the proceeding. However, she went to on express the view that if he did have standing, she would have exercised her discretion against requiring the trustees to provide copies of documents about the trusts to Ivan Erceg.
The Court of Appeal dismissed Ivan Erceg’s appeal, finding that Courtney J had been correct to exercise her discretion against ordering disclosure of any trust documents to Ivan Erceg, even though it reversed her finding that Ivan Erceg had no standing.
The Appeal to the Supreme Court
The trustees of the trusts supported the decisions of the lower Courts to withhold the trust documents. They sought to restore Courtney J’s finding that Ivan Erceg had no standing to seek the orders requiring the trustees to provide copies of documents to him because of the effect of his earlier bankruptcy.
Ivan Erceg argued that the trust documents he requested should have been provided to him. He submitted that the lower Courts were mistaken in overlooking the presumption that core trust documents should be disclosed to beneficiaries in the absence of exceptional circumstances.
The Supreme Court extensively canvassed leading earlier authorities, including the Privy Council decision in Schmidt v Rosewood Trust Ltd and the New Zealand High Court decision in Foreman v Kingstone, which had set out a number of guidelines for trustee consideration when dealing with information requests.
The Supreme Court concluded that interests of the beneficiaries of the trusts would best be met by declining to order any disclosure. The Court found that normally a primary discretionary beneficiary would have a good case for disclosure of the trust deed and financial statements relating to the trust. However, the unusual features of the Erceg case gave rise to real concerns about confidentiality, especially in relation to the identities of beneficiaries who had received distributions. The conduct of Ivan Erceg gave the Court reason for genuine concern about what he would do with trust information if he received it. The concerns outweighed the general expectation that basic trust information should be disclosed to a beneficiary.
At paragraph  of the judgment, the Supreme Court sets out guidance on the matters that need to be evaluated in relation to an application by a beneficiary for disclosure of trust documents.
These include the nature of the documents sought (in particular, whether confidentiality issues arise and whether disclosure will require disclosure of the reasons of the trustees for decisions made by them); the reason for which the beneficiary seeks disclosure; the nature of the requesting beneficiary’s interest; the likely impact of disclosure on the trustees, the other beneficiaries, the settlor and third parties; and whether measures can be taken to protect confidentiality of disclosed documents and to ensure they are used only for the purpose for which they were disclosed.
Although it dismissed the appeal, the Court found that Ivan Erceg did have standing to bring the claim. The ability to seek trust information is based on his status as a beneficiary and not on any proprietary right. Accordingly, his bankruptcy did not affect his ability to seek disclosure. The Court stated, at paragraph  :
“ We do not consider that the bankruptcy of a discretionary beneficiary affects his or her capacity to seek disclosure of trust information from the trustees or the Court. A discretionary beneficiary remains a discretionary beneficiary if he or she is declared bankrupt. If the trustees make any distribution to the discretionary beneficiary, the money or property received by the discretionary beneficiary will be part of the bankrupt estate. So would the proceeds of a successful claim for breach of trust. But we do not think the bankruptcy of a discretionary beneficiary prevents him or her from making an application to the Court for an order requiring the trustees to account or any lesser order, such as an order for disclosure. The discretionary beneficiary is not purporting to act on behalf of anyone else or to be an officious bystander in seeking information. So “standing” in the sense of a proper basis for bringing a claim to Court does not arise. He or she does not need a “right” to claim, in any proprietary sense. The status of discretionary beneficiary suffices. We do not therefore accept that the Court of Appeal erred in reaching the conclusion that the appellant’s bankruptcy and the vesting of his property in the Official Assignee did not make him ineligible to make the application to the Court that commenced the present case.”