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Beneficiaries, Beneficiary rights, Disclosure, Discovery, Discretionary, Right to trust information

A fishing we shall not go

Charlotte Gavin and Daniel Powell are siblings who have been engaged in sustained litigation relating to trusts settled for their respective benefit, together with other family members that are their effective inheritances with each only intended to have recourse to the other’s trust if their own trust fails (see Powell v Powell).

Charlotte seeks to remove the current trustees of her brother’s trust, alleging numerous breach of trust. The current matter before the Court relates to Charlotte’s application for discovery of documents that relate to Daniel’s financial position at the time distributions were made to him as a beneficiary of his trust. The background to these proceedings was Charlotte’s allegation that the trustees of her brother’s trust (the Daniel Powell Family Trust (DPFT)) rejected her request for a distribution (which is denied by the trustees).

By way of background as set out at [16]:

[16] It is instructive to consider the reasons advanced by Charlotte to support her contention the documents are relevant. It is plain, both from Charlotte’s evidence and Mr Moss’s submissions on her behalf, that at the forefront of her concerns are four matters:
(a) she was asked to provide information as to her financial circumstances and to establish her need for distributions;
(b) her requests for distributions were rejected;
(c) the defendants made distributions to Daniel; and
(d) the defendants did not consider Daniel’s financial circumstances or his needs when deciding to make distributions to him.


[17] Charlotte says in her first affidavit in support of this application:
I am seeking the financial information relating to Daniel and his family that was available to the trustees at the time of making distributions to Daniel.
I have been told by the solicitor for the trustees that they do not have any financial information. That means that whereas they asked me for a mountain of financial information about me and my family it seems the professional trustee did not ask for anything of Daniel’s and together they did not consider it when making distributions to him

The professional trustee and Daniel have asked me for information relating to my needs and it follows that they should have sought the same information in respect of Daniel’s before making any distribution to him. Otherwise they are favouring Daniel and his family over mine.

[18] Charlotte says in her reply affidavit:


I believe the documents will show that Daniel had no financial need at the time of the distributions of around $2m and simply made those distributions to further his own personal financial interest and it will assist the Court in understanding what criteria the trustees of the DPFT used (or did not use) in assessing the appropriateness of a distribution for Daniel as compared with me.


[19] Mr Moss, in his written submission, says:


Prior to rejecting [Charlotte’s] requests [for distributions], the trustees made Charlotte run around providing a significant amount of financial information such as her taxable income, bank statements, insurance schedules, valuations of property, her husband’s income and any other benefits, information relating to any other trusts, and evidence that her parents had not provided any support in the past or future…


and


Charlotte’s claims are that Daniel (and Mr Dorrance) have not acted fairly, or in the best interests of all the beneficiaries, and have favoured Daniel and his family over Charlotte and her family when making distribution decisions. This includes not only denying requests for distributions to Charlotte but accepting requests for distributions of over $2.14 million to Daniel.


and


The financial information is relevant to the argument that Daniel has not acted in the best interests of [all of] the beneficiaries, and favoured himself over Charlotte and her family because he has made his decisions on distributions in the knowledge of his own financial position and being able to compare that position with Charlotte’s…


and


… how can Charlotte argue, and how can the Court determine whether or not the trustees have acted fairly, whether or not they have acted capriciously (ie unpredictably), whether or not they have favoured Daniel over Charlotte, whether or not they have taken into account different criteria when making assessments, and if so, whether they are entitled to do so, without knowing both of Daniel and Charlotte’s financial position.

The crux of the issues is that Charlotte considers that the trustees have not treated her and Daniel even-evenhandedly in considering her requests for distributions.

However, as noted at [21] and [22]:

[21] This binary comparison, as it was referred to by Mr Weston, as to the manner in which the defendants dealt with requests for distributions by Charlotte and Daniel must be considered in the context of the prior judgments of the Court where it was held that although Charlotte and Daniel were discretionary beneficiaries of each other’s trusts the entitlement to have recourse to the other’s trust arose if his or her trust should fail for any reason.


[22] Charlotte’s entitlement to seek distributions from the DPFT is necessarily dependent upon the failure, or at least the substantial impairment, of the CPT. Her requests for distributions from the DPFT must necessarily be needs based. This is reflected in the statement of claim which throughout speaks of her needs and the needs of her children. There is, however, nothing that supports a view requests for distributions by Daniel must be needs based or that the defendants were required to consider distributions made to him when considering Charlotte’s requests for distributions.

The application is denied, the reaons for this set out at [29]:

“[29] Finally, Mr Moss argues Daniel does not want to disclose the documents because he has something to hide. I am unable to accept the submission. There are good reasons Daniel would not wish to disclose the documents. The documents would not ordinarily be available to a discretionary beneficiary if sought outside the context of a court proceeding10 and in the context of litigation parties are not required to disclose irrelevant documents. To order discovery of the documents would be to sanction Charlotte undertaking a fishing expedition as to matters she has not put in issue, would raise the prospect of the hearing being diverted into irrelevant areas of enquiry and unnecessarily add to the parties’ costs.”

While, it could be considered that Charlotte’s view is demonstrably unreasonable with trusts having been established for both Charlotte and her brother; it is useful to re-visit the terms of the DPFT, which are set out in a 2014 judgment in proceedings relating to the trusteeship of the DPFT. Significantly:

The Trust Deed

“[37] Clause 1.2 defines the beneficiaries as: (a) Charlotte and Daniel Powell;

(b) the spouse or widower of Daniel;

(c) any child born to, or adopted by Daniel; (d) any child of Charlotte;

(e) any grandchild or more remote issue of Daniel or Charlotte; (f) any spouse of those children or grandchildren; and

(g) any charitable trust, charitable purpose or charitable institution as the trustees, in their absolute discretion, think fit.

[38] Clause 4 gives the trustees the power to pay from the income of the Trust fund, the “expenses of administering the Trust Fund” and to “pay, apply or appropriate the same to, for or towards the personal support, maintenance, comfort, education, advancement in life or otherwise for the benefit of such of the discretionary beneficiaries as may from the time to time be living …”.

As Trusts are being reviewed in light of the Trusts Act and drafting practices are re-visited, careful consideration is required to ensure classes of beneficiaries that accurately reflect the settlor’s wishes and do not excite or invite enquiry or expectation that is difficult to rebuff on its face. If a beneficiary’s position is only intended to be ignited in certain circumstances, it is perhaps incumbent on the person or persons advising on the trust and drafting the trust deed to ensure that the drafting reflect this.

References:

  • Gavin v Powell [2020] NZHC 3017
  • Gavin v Powell [2018] NZHC 2866
  • Gavin v Powell [2019] NZHC 2981
  • Powell v Powell [2014] NZHC 476
  • Trusts Act 2019

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