Ivan Erceg was a discretionary and final beneficiary of two trusts established by his brother Michael Erceg, who died in 2005. Michael Erceg was the founder of Independent Liquor NZ Limited and shares in that company were transferred to the trusts prior to his death. Shortly after his death, the shares were sold for a substantial sum. Subsequently the assets of the trusts were distributed and in 2010 the trusts were wound up.
Ivan Erceg applied to the court for an order requiring the trustees to provide him with certain trust documents. The High Court did not order disclosure. Ivan Erceg appealed to the Court of Appeal, which dismissed his appeal. On 16 September 2016, the case came before the Supreme Court.
Decision on 8 March 2017
The Supreme Court said the starting point for determining a request for disclosure of information is the obligation of the 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.”
It said that there are no hard and fast rules and each case that comes before the courts will be different. “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.”
Issues of confidentiality were important and so was the principle that trustees may decline to disclose to discretionary beneficiaries documents that set out their reasons (although the Court noted in a footnote that this principle was not challenged in argument “and we do not therefore express a concluded view on it”).
With these considerations in mind, the Court set out the following matters to be evaluated in relation to an application for disclosure of trust documents:
a) The documents that are sought.
b) The context for the request and the objective of the beneficiary in making the request.
c) The nature of the interests held by the beneficiary seeking access.
d) Whether there are issues of personal or commercial confidentiality.
e) Whether there is any practical difficulty in providing the information.
f) Whether the documents sought disclose the trustee’s reasons for decisions made by the trustees.
g) The likely impact on the trustee and the other beneficiaries if disclosure is made.
h) The likely impact on the settlor and third parties if disclosure is made.
i) Whether disclosure can be made while still protecting confidentiality.
j) Whether safeguards can be imposed on the use of the trust documentation.
The Court said that it was important to identify what documents were being sought. “It can be misleading to see a case relating to a confidential memorandum of wishes, for example, as providing guidance in relation to a case involving a request for basic documents such as the trust deed and trust accounts."
In this case it was useful to categorise the documents and consider the request for disclosure on a category by category basis. The nature of the beneficiary’s interest was also significant. “A named beneficiary or a member of a class such as the immediate family of the settlor, who can be expected to either receive dispositions from the trust or, at least, to be a strong candidate to do so, will have a far more compelling case for disclosure than, say, a charitable institution that is within the category of institutions to which a disposition could be made but has no other association with the trust.”
The Court considered each of the above matters in relation to the trust deed, deeds of variation and financial statements (documents the Court categorised as basic trust documents). It decided that in this case disclosure of even these basic trust documents should be declined. The Court was concerned about what Ivan Erceg would do with the information if he received it, and the interests of the other beneficiaries was better served by declining disclosure.
for a copy of Erceg v Erceg
 NZSC 28.
If you would like to discuss the disclosure of trust information to beneficiaries, please contact your usual TGT Legal adviser.