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Beneficiaries, Beneficiary rights, Cases, Costs, Disclosure, Discretionary, Indmenity, Memoranda of Wishes, Right to trust information, Settlors, trust, Trustee liability, Trustees, Trusts

Turning of the tide?

McGuire v Earl is a successful application for the following trust information:

  • statements of accounts
  • copies of all Minutes and Resolutions
  • any documents pertaining to any distributions
  • all documents pertaining to any gifting or debt incurred, and
  • bank statements for all bank accounts.

The trust in question was settled by Mr McGuire’s father and Mr McGuire was one of two living discretionary beneficiaries.  Evidence was filed regarding Mr McGuire’s difficult relationship with his deceased father, who was the trust’s settlor.

The court adopted the following principles from the recent High Court decision in Jacomb v Jacomb at [9] to [11]:

“[9] I adopt the summary of Cooke J in Jacomb v Jacomb as an appropriate summary of the principles which reflect the approach taken by counsel in this case:

 [7] The first point is that, whilst it is initially for the trustees to make a decision on whether to provide disclosure to beneficiaries, an application to the Court requires the Court to exercise its own judgment, and make its own decision on whether disclosure should be made. As the Supreme Court in Erceg held:

[18] We consider the correct position is that the Court’s jurisdiction on an application for the exercise of the supervisory jurisdiction is not limited to the grounds of review of a discretionary decision by the trustees. Rather, the Court must exercise its jurisdiction as a court of equity, exercising its own judgment as to whether disclosure ought to be made at all and, if so, to what extent and on what conditions.

[19] The supervisory jurisdiction is an inherent jurisdiction of the Court. It is complementary to the Court’s statutory jurisdiction under the Trustee Act 1956

[8] The Supreme Court also addressed, in some detail, the approach that should be adopted in relation to disclosure applications. It held as follows:

[51] We see the starting point as being the obligation of a trustee to administer the trust in accordance with the trust deed and the duty to account to beneficiaries. A beneficiary who seeks such an account may seek access to documentation necessary to assess whether the trustee has acted in accordance with the trust deed. That can be expected to be the basis on which the beneficiary will seek disclosure of trust documentation. …

[53] However, it must be borne in mind that there will normally be a number of beneficiaries and the underlying principle in deciding whether disclosure will be made will be identifying the course of action which is most consistent with the proper administration of the trust and the interests of the beneficiaries, not just the beneficiary requesting disclosure. …

[56] Drawing these threads together, we consider the matters that need to be evaluated in relation to an application for disclosure of trust documents include the following:

(a) The documents that are sought. Where a number of documents are sought, each document (or class of document) may need to be evaluated separately, given that different considerations may apply to basic documents such as the trust deed and more remote documents such as the settlor’s memorandum of wishes.

(b) 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 in the administration of the trust could not otherwise occur. In this regard, it may be relevant that disclosure has been made to other beneficiaries. However, assuming no improper motive on the part of the beneficiary seeking information, the fact that disclosure has previously been made to other beneficiaries will rarely be a decisive factor against disclosure.

(c) The nature of the interests held by the beneficiary seeking access. The degree of proximity of the beneficiary to the trust (or likelihood of the requesting beneficiary or others in the same class of beneficiaries benefitting from the trust) will also be a relevant factor.

(d) Whether there are issues of personal or commercial confidentiality. Recognition should be given to the need to protect confidential matters of a personal or commercial nature. The Court should also take into account any indications in the trust deed itself about the need for confidentiality in relation to commercial dealings or private matters in relation to particular beneficiaries.

(e) Whether there is any practical difficulty in providing the information. If the information sought by the person requesting the information would be difficult or expensive to generate or collate, that may be a factor against requiring its disclosure.

(f) Whether the documents sought disclose the trustee’s reasons for decisions made by the trustees. It would not normally be appropriate to require disclosure of the trustees’ reasons for particular decisions.

(g) The likely impact on the trustee and the other beneficiaries if disclosure is made. In particular, would disclosure have an adverse impact [on] the beneficiaries as a whole that would outweigh the benefit of disclosure to the requesting beneficiary? In the case of a family trust, this may include the possibility that disclosure would embitter family feelings and the relationship between the trustees and beneficiaries to the detriment of the beneficiaries as a whole. However, on the other hand, non-disclosure may have a similar effect.

(h) The likely impact on the settlor and third parties if disclosure is made. The impact that disclosure will have on the settlor and/or on third parties will need to be considered.

(i) Whether disclosure can be made while still protecting confidentiality. This may require that copies of documents supplied to a beneficiary are redacted to ensure non-disclosure of confidential information.

(j) Whether safeguards can be imposed on the use of the trust documentation. Examples would include undertakings and inspection by professional advisers only and other safeguards to ensure the documentation is used only for the purpose for which it was disclosed. …

[60] As noted earlier, the starting point is the obligation of trustees to administer the trust in accordance with the trust deed and their duty to account to beneficiaries. So the strongest case for disclosure would be a case involving a request from a close beneficiary for disclosure of the trust deed and the trust accounts, which would be the minimum needed to scrutinise the trustees’ actions in order to hold them to account.

[9] In circumstances described as “unusual” the Court ultimately held in that case that even the basic documents such as the trust deed and financial statements should not be disclosed. The Court concluded that the risk of harassment by the applicant was significant and the benefits of disclosure were outweighed by the potential detriment.

[10] These principles were subsequently applied by the Court of Appeal in Addleman v Lambie Trustee Ltd.  In that case the applicant, who was also estranged from her family, was granted disclosure of information. The Court said:

[28] One of a trustee’s fundamental duties is to maintain proper accounts in respect of trust property and have these available for inspection by beneficiaries. This is a necessary incident of a trustee’s fiduciary duty to account to the beneficiaries. Failure to keep such accounts is a breach of trust. While a beneficiary does not have an absolute right to the accounts, the circumstances in which such accounts may properly be withheld from a close beneficiary are likely to be limited. As the Supreme Court observed in Erceg, “the strongest case for disclosure would be a case involving a request from a close beneficiary for disclosure of the trust deed and the trust accounts, which would be the minimum needed to scrutinise the trustees’ actions in order to hold them to account”.

[11] In my view it is of assistance when applying these principles to bear in mind their purpose. As the above passage illustrates, the reason why beneficiaries are normally entitled to information is that such disclosure can operate as a means by which the trustees’ performance of the terms of the relevant trust are checked, and the objects of the trust ultimately promoted. This is in the best interests of the trust and its beneficiaries, including the beneficiary seeking information. That also explains the exception to the principle. If particular disclosure would likely result in the objects of the trust being adversely affected then a basis to withhold disclosure arises. Disclosure to one beneficiary may be adverse to the interests of the wider beneficiaries because of such ramifications. It seems to me, therefore, that ultimately the Court is considering what is in the best interests of the trust and its beneficiaries.”

Mr McGuire first sought information about the trust in 2018.  The process of obtaining information was protracted and eventually in August 2019 the trustees’ solicitor advised that they would provide trust documents at a meeting.  Mr McGuire’s solicitors advised that they would prefer to have information before any meeting.  In October 2019 the trustees’ solicitors provided a copy of the Trust Deed, a Deed of Appointment of Trustees and a copy of the financial statements for the year ended 31 March 2018. The trustees’ solicitors referred to having a Memoranda of Wishes that the settlor wanted to be kept confidential.

Mr McGuire’s solicitors requested further information.  The response to which being that no further information would be provided unless Mr McGuire agreed to meet with the trustees.

Proceedings were filed following which some further information was provided.  The information provided showed that a distribution had been made to a non-beneficiary and that the value of transactions totalling $181,996  was not adequately explained.  The distribution to the non-beneficiary (a research trust) was explained as having been made in accordance with the settlor’s memoranda of wishes.  As noted at [26]:

[26] A Memoranda of Wishes does not override the terms of the Trust Deed. The starting position is the trustees made an unauthorised distribution of a substantial portion of the Trust assets, albeit it cannot be said at this point in the proceedings how much of the distribution was unauthorised, given the lack of detail provided by the trustees.

The lack of fulsome disclosure did not bode well for the trustees.  Although Associate Judge Lester signalled his views on the trustees, the approach taken was to consider each request for information by reference to the Erceg Categories.

With respect to minutes and resolutions, which are classified by the Supreme Court in Erceg as category 2 documents, which is similar to Category 1, which are basic documents for which the strongest case for disclosure can be made; the only difference with Category 2 being that some redactions may be permissible so as not to reveal the trustees’ reasons.

However, as noted at [32] “The redactions should be the minimum required to protect personal information which is truly confidential, commercially confidential information, the reasons relating to the exercise of the trustees’ discretion, and possibly information which would cause family disharmony.”

With respect to the memorandum of wishes, Associate Judge Lester was not moved by the trustees’ position that to disclose this would breach their obligations of confidence stating at [37]:

[37] Assuming the Memoranda of Wishes does impose an obligation of confidence on the trustees, I do not consider that obligation sufficient to permit the trustees to resist the disclosure application. Firstly, in respect of the disclosure concerning the $181,996, given the wholly inadequate treatment of this in the financial accounts and the less than fulsome explanation set out at [22] above, full details as to where this money went and why, with all surrounding material, is at the heart of the trustees’ disclosure obligations.

Disclosure was also ordered with respect to all documents pertaining to distributions due to concerns regarding the accuracy of the financial statements.  Disclosure was also ordered with respect to bank statements relating to all bank accounts.

In the subsequent costs judgment, the trustees did not fare well.  As noted at [26] of that decision:

“… I hold that view because the defendants sought to defend the indefensible that is, their refusal to provide information when they acknowledged having made a distribution to a non-beneficiary. They required the matter to go to a hearing. Even during the hearing, when I took a brief adjournment to see if the matter could be resolved given the discussions that had occurred, the defendants did not relent.”

Accordingly, the trustees were ordered to personally pay two-thirds of the costs award, which was on a 2B basis with a 50% up-lift and were denied any indemnity from the trust fund with respect to the same quantum (two-thirds) of their own costs on the basis that they had acted negligently.

Vicki Ammundsen will be discussing McGuire v Earl and other recent cases in the Trust Series 2021 – How did we get here?  Why did the trust go wrong?  See CCH Learning for more information.

References:

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