ERCEG v ERCEG & Anor [2014] NZHC 155

ERCEG v ERCEG & Anor [2014] NZHC 155 [14 February 2014]ORDER THAT FILE NOT BE SEARCHED WITHOUT LEAVE OF A JUDGE.IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2013-404-004330[2014] NZHC 155UNDER The Declaratory Judgments Act 1908IN THE MATTER OF The Acorn Foundation TrustBETWEEN MILLIE MARTHA ERCEGPlaintiffAND LYNETTE THERESE ERCEG andDARRYL EDWARD GREGORYDefendantsHearing: 31 January 2014Appearances: G Illingworth QC and D G Collecutt for PlaintiffA R Galbraith QC and J F Anderson for DefendantsJudgment: 14 February 2014JUDGMENT OF VENNING JThis judgment was delivered by me on 14 February 2014 at 11.30 am, pursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDateSolicitors: Simpson Dowsett Mackie, AucklandWilson Harle, AucklandCopy to: G Illingworth QC, AucklandD G Collecutt, AucklandA R Galbraith QC, AucklandJ F Anderson, AucklandIntroduction[1] In this application for summary judgment Millie Erceg seeks orders:(a) declaring that she is a beneficiary of the Acorn Foundation Trust (the Trust); and(b) requiring the defendants to provide copies of documents relating to the Trust to her and her advisers.Background[2] Millie Erceg is the mother of the late Michael Anthony Erceg (Michael). The Trust Deed records her as a secondary beneficiary of the Trust.[3] Michael settled the Trust in 2004. Michael and the second-named defendant were the original trustees.[4] Michael was also the founder of Independent Liquor NZ Limited (Independent Liquor). He was killed in an accident on 4 November 2005. At the time of his death the Trust held a significant number of shares in Independent Liquor which it had acquired from Michael.[5] Following Michael's death his widow, Lynette Therese Erceg, became a trustee with Mr Gregory.[6] The Trust sold its shares in Independent Liquor for a substantial sum. The Trust was subsequently distributed. Millie Erceg has not received any distribution from the Trust.[7] The documents Millie Erceg seeks copies of are:(a) the Trust Deed;(b) financial accounts for the Trust from the date of its creation to the date of determination by the Court;(c) copies of the agreements for the sale of the Trust's shares inIndependent Liquor and any valuations obtained by the defendants in relation to Independent Liquor;(d) minutes of all meetings of the trustees of the Trust.[8] Millie Erceg seeks orders that the documents be provided to her, to her counsel (senior and junior), to her solicitor and to her son Ivan as a family adviser on the condition that confidentiality undertakings be provided.[9] The defendants accept that Millie Erceg is a secondary beneficiary of the Trust. They note that she was formerly represented by other legal advisers and that she was previously provided with inspection of the Trust Deed, the Deed of Sale of the Independent Liquor shares by Michael to the Trust, the associated Acknowledgement of Debt for the same amount and the draft accounts of the Trust showing the equity in it following the sale.[10] The defendants' position is that in establishing the Trust Michael as settlorwas adamant that the Trust and its affairs were to be kept confidential. They seek tomaintain that confidentiality.[11] As one might expect, senior counsel have sought to resolve this issue. Some progress has been made. Mr Illingworth QC has been provided with copies of the documents sought on terms of confidentiality. The defendants have also made an open offer for Millie Erceg (and junior counsel) to inspect the following Trust documents:(a) the Trust Deed;(b) the financial accounts for the Trust;(c) a valuation of the shares of Independent Liquor at the time the Trust acquired the shares from Michael; and(d) resolutions of the trustees of the Trust;on condition that:(i) Millie Erceg and junior counsel are permitted to inspect the documents subject to redactions (namely, the identification of beneficiaries other than Millie Erceg, recipients of distributions and loans, and amounts of the distributions and loans) but may not copy or otherwise reproduce or record the documents or their contents in any way;(ii) senior counsel may retain a hard copy of the redacted documents in his chambers but is to keep them confidential to himself and return them if and when requested. They are not to be further copied, recorded or reproduced;(iii) Senior counsel may reinspect the unredacted documents at any time but may not disclose any information beyond that contained in a proposed schedule with any disclosure to be limited to Millie Erceg and junior counsel;(iv) the information is to be kept confidential and not otherwise disclosed without prior express written authority of the defendants, with the exception that counsel (including senior and junior) and Millie Erceg may of course discuss theinformation other than the redacted information known only toMr Illingworth amongst themselves.Millie Erceg's position as beneficiary[12] As noted, the first order sought in the application for summary judgment is a declaration that Millie Erceg is a beneficiary of the Trust. The defendants submit such an order is unnecessary.[13] It is apparent from the material before the Court that Millie Erceg is a named secondary beneficiary of the Trust. That is accepted. Given that acknowledgement Iconsider it is appropriate that the Court decline to make the order sought.1 The subject matter of the declaration sought is not in issue. An order is unnecessary.The request for the Trust documentsThe relevant authorities[14] For present purposes the leading cases are Schmidt v Rosewood Trust Ltd andForeman v Kingstone.2[15] Prior to Schmidt v Rosewood Trust Ltd a number of cases had suggested that a beneficiary had a proprietary right to access trust documents.3 However, delivering the advice of the Privy Council in Schmidt v Rosewood Trust, Lord Walker rejectedthe proposition that a beneficiary's claim for disclosure of trust documents should beregarded as a proprietary right in favour of a more principled approach, namely that"the right to seek disclosure of trust documents [is] one aspect of the court's inherentjurisdiction to supervise, and if necessary to intervene in, the administration oftrusts."4[16] In coming to that view the Privy Council were in general agreement with the approach adopted in the judgments of Kirby P and Shellar J A in the Court of Appeal of New South Wales in Hartigan Nominees Pty Ltd v Rydge5 but went on to clarify that:6It will be observed that Kirby P said that for an applicant to have a proprietary right might be sufficient, but was not necessary. In the Board's view it is neither sufficient nor necessary. Since In re Cowin 33 Ch D 179 well over a century ago the court has made clear that there may be circumstances (especially of confidentiality) in which even a vested and transmissible beneficial interest is not a sufficient basis for requiring disclosure of trust documents; and In re Londonderry's Settlement and more recent cases have begun to work out in some detail the way in which the1 High Court Rules, r 12.2 confirms that even where a Court is satisfied a party may be entitled to the order sought it is within the discretion of the Court whether or not the order is made.2 Schmidt v Rosewood Trust Ltd [2003] UKPC 26, and Foreman v Kingstone [2004] 1 NZLR 841 (HC).3 See, for example, O'Rourke v Derbyshire [1920] AC 581, per Lord Wrenbury, In reLondonderry's Settlement, Peat & Ors v Walsh [1965] Ch 918 per Salmon LJ and A T & T Istel Ltd v Tully [1993] AC 45, at 65.4 Schmidt v Rosewood Trust Ltd, above n 2 at [51].5 Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405.6 Schmidt v Rosewood Trust Ltd, above n 2 at [54].court should exercise its discretion in such cases. There are three such areas in which the court may have to form a discretionary judgment: whether a discretionary object (or some other beneficiary with only a remote or wholly defeasible interest) should be granted relief at all; what classes of documents should be disclosed, either completely or in a redacted form; and what safeguards should be imposed (whether by undertakings to the court, arrangements for professional inspection, or otherwise) to limit the use which may be made of documents or information disclosed under the order of the court.[17] Lord Walker also expressly acknowledged that in cases involving personal or commercial confidentiality the Court may have to balance the competing interests of different beneficiaries, trustees and third parties.7[18] In Foreman v Kingstone the plaintiffs were members of a class of potential beneficiaries of a number of related discretionary trusts.8 They brought an action against the trustees seeking various forms of relief including orders directing disclosure of a number of documents relating to the Trust. The question whether the trustees were under a duty to disclose the documents was determined as a preliminary issue. After reviewing previous authorities, particularly Schmidt v Rosewood Trust Ltd, Potter J concluded:[97] Beneficiaries are entitled to receive information which will enable them to ensure the accountability of the trustees in terms of the trust deed. They are entitled to have the trust property properly managed and to have the trustees account for their management. They are entitled to receive trust accounts (Spellson v George (see para [66] above) and Chaine-Nickson v Bank of Ireland). This goes well beyond the right to be "considered" by the trustees which, in the defendants' submission, is the extent of entitlement of a discretionary beneficiary.[98] These are fundamental rights of beneficiaries. They are not absolute rights which arise from documents or information being categorised as"core trust documentation". They will be subject to the discretion of theCourt in its supervisory jurisdiction when trustees seek directions, or beneficiaries seek relief against refusal by trustees to disclose.[99] Beneficiaries are not entitled to the reasons for the exercise by the trustees of their discretions. They are obligated to respect the autonomy of the trustees pursuant to broad discretions vested in them by the trust deed.[100] In this case, I conclude that there are no circumstances which should persuade the Court to override the fundamental rights of the plaintiffs as beneficiaries to the extent of the orders made to disclose.7 Schmidt v Rosewood Trust Ltd, above n 2 at [67].8 Foreman v Kingstone, above n 2.[19] In summary counsel accept the principles established by the above cases andthe authorities discussed therein, acknowledging that in this case Millie Erceg has aright to seek disclosure and the Court has a discretion to order disclosure as an aspectof the Court's inherent jurisdiction to supervise the administration of trusts.The parties' cases[20] Mr Illingworth submitted that it was not sufficient for him, as senior counsel, to have had access to the documents. He could not discuss them fully with Millie Erceg. He submitted that without access to the documents Millie Erceg was unable to require the defendants to account, in any practical way, for their actions as trustees.[21] Mr Illingworth submitted there was no principled basis for denying Millie Erceg the relief sought, and that confidentiality could be maintained by appropriate undertakings from Millie Erceg and her advisers. He acknowledged some redactions may be appropriate.[22] Mr Galbraith QC referred to the express wish of Michael as settlor of the Trust for confidentiality. He noted the confidentiality clause in the Trust Deed and emphasised the discretionary nature of the Trust, which was confirmed by a number of express provisions in the Trust Deed itself.[23] The defendants submit it is difficult to see what possible claim Millie Erceg may have had to be required to be considered for assistance or provision as a secondary beneficiary of the Trust. While Millie Erceg has not received any distribution from the Trust the defendants say that her interests and needs have beenmore than adequately provided for after Michael's death by the provisions of his willand the establishment of another Trust, the Erceg Family Trust, which is itself thesubject of separate proceedings in this Court.[24] The trustees are concerned that the disclosure of the identity of the other beneficiaries under the Trust and the benefits received by individual beneficiaries from the Trust will create further disharmony between family members where there is already an unfortunate history of tension and conflict between them.[25] The defendants submit that their proposal for provision of full documents to senior counsel and redacted copies of documents to Millie Erceg and other limited legal advisers strikes an appropriate balance. They also raise a concern as to theCourt's ability to enforce any undertaking given by Millie Erceg, an elderly woman in her eighties, in the event of breach of the confidentiality undertaking proposed on her behalf.Discussion[26] Millie Erceg's application for access to the Trust documents raises an aspect of the Court's inherent jurisdiction to supervise and, if necessary, to intervene in the administration of trusts.[27] The request highlights the conflict acknowledged in the authorities between the rights of a beneficiary to seek information to ensure the accountability of trustees and the established principle that trustees exercising a discretionary power are notbound to disclose to the beneficiaries the reasons behind their decisions.9[28] There are a number of features relevant to determination of the present application. As noted, in the past Millie Erceg and her former advisers were provided with inspection of the Trust Deed, the Deed of Sale of Shares by Michael of his shares in Independent Liquor to the Trust and associated Acknowledgement of Debt and the draft accounts for the Trust showing the equity after sale. That is advanced by the defendants as a reason why it is unnecessary to make the further disclosure now. It is also advanced to support the submission on behalf of the defendants that they have acted reasonably. However, in my view it also supports disclosure of the documents referred to again, particularly the Trust Deed. If the defendants were prepared to disclose it previously, then they should be prepared todisclose it again so that Mr Illingworth as Millie Erceg's current adviser may discussit with her and properly advise her about it.[29] Next, there is the defendants' reliance on the confidentiality provision in theTrust Deed. The confidentiality clause is in the following terms:9 See, for example, In re Londonderry's Settlement, Peat & Ors v Walsh, above n 3.CONFIDENTIALITYWithout prejudice to any right of the trustees under the proper law to refuse disclosure of any document or information, the trustees shall not, unless required by law, be bound to disclose to any person any document or information relating to this Trust, the Trust fund or any Trust property, the beneficiaries or any document setting forth or recording any deliberations of the trustees as to the manner in which they have or should exercise any power or discretion, or the reasons for any particular exercise of any such power or discretion, or any other related documents including this instrument.[30] I accept the clause is evidence of the settlor's intention and desire thatconfidentiality is to be maintained but, on its own terms, it properly acknowledges that if a Court considers it appropriate to require disclosure then the trustees must disclose the relevant information. To that extent it acknowledges the legal position confirmed by the above authorities.[31] In submitting the plaintiff's lack of access to the Trust Deed and other key documents means she is unable to require the defendants to account for their actions as trustees, Mr Illingworth relied in particular on Potter J's reasoning in Foreman v Kingstone that the beneficiaries' entitlement to information to ensure the trustees'accountability went well beyond the right to be considered by the trustees as a discretionary beneficiary.10 But the undisputed right of a discretionary beneficiary to ensure the accountability of the trustees does not provide the answer to how much and what type of information should be disclosed in a particular case. For example, in Chaine-Nickson v Bank of Ireland Kenny J confirmed the beneficiaries of a discretionary trust were entitled to see the accounts to determine the remuneration taken by the trustees.11 The relief was directed at the right sought to be enforced. It is a rather different issue whether it is necessary to disclose the identity of beneficiaries to whom loans or distributions have been made to ensure the trust property is properly managed, for example.[32] With respect, I consider Potter J overstated the position in suggesting the need for exceptional circumstances to exist to outweigh the beneficiaries' "right" tobe informed. The point is, as the Privy Council made clear, that the beneficiary does10 Foreman v Kingstone, above n 2 at [96].11 Chaine-Nickson v Bank of Ireland [1976] IR 393 (Ir HC).not have a proprietary right to information; rather, the Court will require disclosure of information to ensure the trustees meet their obligations towards the beneficiaries.The beneficiaries' right is to have the Trust property properly managed. There are corresponding obligations on the trustees to properly manage the Trust and to meet the fiduciary obligations they owe to all beneficiaries. In order to ensure that the trustees are held to account, it may be necessary for the beneficiaries to have access to the relevant Trust documents. The beneficiary's ability to apply to the Court for access to Trust documents, and the Court's discretionary authority to direct access, is ancillary to the beneficiaries' primary right to have the Trust property properlymanaged. What information may be required to enable the beneficiaries to hold the trustees to account in a particular case will therefore depend on the obligation in issue. The matter must be considered in the context of the application, the disclosures sought, and the relevant obligations in issue. Further, as the Privy Council confirmed, where there are issues of personal confidentiality disclosure may properly be limited.[33] For those reasons, I consider the context of the application to be particularly relevant. In my view there is a difference between a request such as in the present case, made to enable counsel for the beneficiary to give the beneficiary general advice as to her position and potential rights, and a request for disclosure in the context of an application for discovery in properly and responsibly instituted proceedings which raise, for example, a possible breach of trust. In this regard it is relevant that this is an application for summary judgment in which the Court is asked to exercise its discretion in making the orders sought.12[34] In Schmidt v Rosewood Trust the applicant sought disclosure from the defendant trust company to enable him to determine whether funds allocated to his deceased father were fully accounted for. He sought documents or information relevant to the issue of whether, but for breaches of fiduciary duty (such as overcharging), more funds would have been available for distribution, there being proceedings on foot that raised the issue.12 Pemberton v Chappell [1987] 1 NZLR 1 (CA).[35] In Foreman v Kingstone, while the issue of access to trust was determined as a preliminary question, the substantive issues before the Court included:whether the trustees had invalidly distributed income;whether the trust was invalidly wound up and the trustees were required to account to the plaintiffs for their administration; andwhether another trust had been invalidly resettled.[36] There are no such proceedings on foot in the present case concerning the Trust.[37] It is also particularly relevant in my view that there is, on the material before the Court, clear evidence of animosity between family members, particularly between Ivan Erceg and the defendant trustees. That is apparent from email correspondence authored by Ivan Erceg. That correspondence discloses that Ivan Erceg has, in the past, threatened to widely publish information concerning thefamily trust(s) as well as details of Michael's will if he did not receive a satisfactoryresponse from the defendants.[38] I do not accept Mr Illingworth's submission, in reliance on Potter J'sobservation that non disclosure may increase the friction, that the fact the family is already dysfunctional means the family dynamics could hardly get any worse.13 The position is relatively controlled at the moment, but it could become significantly worse if there was unrestricted disclosure as sought by Millie Erceg and particularly to Ivan Erceg as a family adviser. It is inevitable that disclosure of details of the distributions made to others (as opposed to disclosure of the Trust Deed and the Trust accounts generally) will lead to invidious comparisons of the respective positions of Millie Erceg and other beneficiaries. That is just the sort of situation the settlor wished to avoid and is the sort of personal circumstances which warrants the Court preserving confidentiality. It is also relevant that Millie Erceg is a secondary, as opposed to a primary, beneficiary in an entirely discretionary trust.13 Foreman v Kingstone, above n 2 at [95].[39] In summary, while I accept there should be further disclosure sufficient to enable Mr Illingworth to properly discuss Millie Erceg's position with her and toadvise her of her rights, this case raises significant issues of personal confidentiality. The settlor acknowledged that. The trustees have an obligation to fulfil the settlor'sintentions subject to their legal obligation to comply with directions of the Court.[40] I consider the supervisory role of the Court can be satisfied in this case by providing information about the Trust to Millie Erceg and her counsel to such an extent and in such a way that senior counsel can properly advise her whether it can be responsibly said the defendant trustees have acted in breach of their duties to her as a beneficiary or not.[41] I note the defendants' submission as to the unenforceability of theundertakings proposed by Millie Erceg. I consider that concern to be overstated. First, as Mr Illingworth submitted, there is no reason to consider that Millie Erceg would not abide by any undertaking she provided to the Court, particularly given the advice that she will receive in relation to that by senior counsel. Next, it may be that Millie Erceg intends to issue proceedings against the defendant trustees. As noted, she has instituted other proceedings in this Court. The nature of the relief in such proceedings is discretionary. In the event that Millie Erceg was found to have breached an undertaking to the Court, the Court could properly take that into account when determining the nature and extent of any relief that might otherwise be appropriate. In short I do not accept that an undertaking by her would necessarily be a vain requirement and unenforceable.[42] I turn to consider each of the category of documents in issue. In relation to the Trust Deed, I consider the competing interests can be addressed in the context of this application by providing disclosure of the Trust Deed in full and in an unredacted form to both senior and junior counsel and also to Millie Erceg with appropriate undertakings. Disclosure of the full provisions of the Trust Deed, including identification of the primary and secondary beneficiaries, is necessary tofully disclose Michael's intentions as settlor and the terms of the Trust. It is alsorelevant that it has been disclosed to Millie Erceg previously.[43] As to the financial accounts of the Trust and the resolutions of the trustees ofthe Trust, I consider in both cases the identity of the individual beneficiaries towhom distributions or loans were made is confidential information. It can properlybe redacted from the information provided to Millie Erceg and junior counsel. It isnot necessary in the context of this application to require disclosure (beyond MrIllingworth) of the identity of beneficiaries who have received distributions andloans to enable Millie Erceg to hold the trustees accountable. The accounts willdisclose the corpus of the Trust, the amounts distributed and lent (in totals) and thetrustees' fees and expenses. The resolutions will disclose the transactions, but notthe identity of the beneficiaries. The only reason for disclosure of the identity of thebeneficiaries to whom distributions were made would be to enable Millie Erceg tocompare her position with each of those other named beneficiaries, which would betantamount to inviting a review of the exercise of the trustees' discretion in makingthe distribution/loans advances to those other beneficiaries in circumstances where itmust be accepted their decisions to do so (in the absence of bad faith) cannot be thesubject of challenge.[44] In short, I do not consider that it is necessary for Millie Erceg to be aware of the identity of the beneficiaries to whom distributions or loans have been made to enable senior counsel to advise her whether she can responsibly claim the trustees have breached the terms of the Trust. In this regard, Millie Erceg will of course be well aware of her personal circumstances and needs.[45] The trustees have also agreed to provide a valuation of the shares of Independent Liquor at the time the Trust acquired the shares from Michael. I do not understand there to be any need for redaction of that information.[46] In determining that further disclosure is required, I do not overlook that Mrs Lynette Erceg has said in her affidavit that when the Trust was formed it wasMichael's and her intention it would be their own private and personal Trust.However, I accept the force in Mr Illingworth's observation in response that isdifficult to reconcile that suggestion with the list of primary and secondary beneficiaries of the Trust.[47] The last issue is the request by Millie Erceg that the documents also be disclosed to Ivan Erceg as a family adviser. Mr Illingworth explained that, until shortly prior to the hearing he had understood that aspect of the application wouldnot be pursued and had communicated the same to the defendants' counsel.Unfortunately that position changed shortly prior to the hearing. In those circumstances he requested that that aspect of the application be held over. On reflection I do not consider it to be appropriate or necessary to hold that issue over. The Court should determine the extent of disclosure at this time. I would not be prepared to grant disclosure to Mr Erceg as a family adviser on this application for the reasons set out above. Such disclosure is unnecessary in order for Millie Erceg to hold the trustees accountable.Result/Orders[48] I decline to make an order declaring Millie Erceg to be a beneficiary of the Trust because that is not in issue. No order or declaration is necessary.[49] Millie Erceg and junior counsel Mr Collecutt may inspect the Trust Deed and the valuation of the shares of Independent Liquor at the time that the Trust acquired the shares from Michael Erceg but may not copy or otherwise reproduce or record the documents or their contents in any way.[50] Millie Erceg and Mr Collecutt may inspect the financial accounts for the Trust and resolutions of the trustees subject to limited redactions (being anyidentification of the recipients of the distributions and loans and amounts ofindividual distributions and loans (as opposed to total amounts of distributions andloans)) but may not copy or otherwise reproduce or record the documents or theircontents in any way.[51] Mr Illingworth may retain a hard copy of the Trust Deed and the other redacted documents in his Chambers but is to keep them confidential to himself and return them if and when requested by the trustees. He may not copy or otherwise reproduce or record the documents or their contents in any way.[52] Mr Illingworth may reinspect the unredacted documents but may not disclose any information concerning the identity of the beneficiaries to whom distributions and/or loans have been made.[53] The information within the documents disclosed is to be kept confidential and not otherwise disclosed without the prior written authority of the trustees. Mr Illingworth, Millie Erceg and Mr Collecutt may of course discuss the information (other than the redacted information known only to Mr Illingworth) amongst themselves.[54] Before the documents are required to be disclosed a written undertaking in the following words (or to like effect) is to be provided:I hereby undertake to keep confidential the documents listed in [schedule] together with any copies, notes or records based on memory of those documents, and will not take any copies, notes or records of those documents provided that:(a) the defendants or their solicitors by notice in writing (with the written agreement of the relevant undertakers); or(b) the High Courtmay release the undertakers (or any one of the undertakers from their undertakings or vary the undertakings on such terms as the parties or the High Court considers appropriate). It is expressly recorded that these undertakings are not intended to limit the High Court's jurisdiction to makesuch orders as it considers appropriate for access to or use of the documents listed.[55] Leave reserved to either party to apply on 48 hours notice.Costs[56] Costs are reserved.__________________________ Venning J