2. Case Law
2.1 Recent New Zealand Decisions
Re Foreman v Kingstone [2004] 1 NZLR 841
This case related to the extent of trustees’ obligation to disclose information and documents to discretionary beneficiaries. It concerned a complex family situation involving 3 trusts and children from various marriages of the settlor. The plaintiffs in question were discretionary beneficiaries under trusts, and were seeking access to information and documentation relating to the trusts.
The case provides an extensive analysis of the New Zealand application of the leading international case in the area, Schmidt v Rosewood Trust Limited [2003] 3 All ER 76 (which was discussed in the report for the 2003 year) as well as related authorities. The case confirms that the right of discretionary beneficiaries to obtain documents and information relating to a trust is not a proprietary right. Rather, beneficiaries are entitled to receive information which will enable them to ensure the accountability of the trustees in terms of the trust deed. A beneficiary’s access to trust documents should be approached as an aspect of the Court’s inherent jurisdiction to supervise the administration of trusts. The fact that the party establishing a trust may desire confidentiality in relation to the trust’s affairs does not, of itself, outweigh the right of beneficiaries to be informed – the fundamental duty of trustees is to be accountable to the beneficiaries, not the party establishing the trust.
That having been said, the judgment confirms that beneficiaries are not entitled to be given the reasons for the exercise by the trustees of their discretions. They must respect the autonomy of the trustees in relation to discretions vested in them by the relevant trust deed. The request for information as to the basis upon which various decisions of the trustees were made was declined.
The plaintiffs in this case had requested access to various categories of information. They were partially successful in the proceedings. In essence, “trust documents” (deeds and financial information) were ordered to be provided.
In the superannuation context this may mean that requests or directions as to confidentiality made by a participating employer ought not to derogate from the members’ right to be informed. The fundamental trust law duty of a superannuation scheme trustee is to be accountable to the members, with accountability to participating employers a secondary consideration. In the superannuation context, these rights to disclosure are also prescribed by statute. Trustees of superannuation schemes will also find the analysis in the case of
relevance when considering the implications of recording reasons for the exercise of any discretion, and the extent to which information held must be disclosed to scheme members and beneficiaries.
Hester & Ors v Commissioner of Inland Revenue (CIR) (2004) 21 NZTC 18,421
The plaintiffs were the trustees of the Church of Jesus Christ of Latter Day Saints Deseret Benefit Plan for New Zealand. The plan was a defined benefit and contributory superannuation scheme providing retirement income for employees of the church. The trustees claimed that the plan was exempt from income tax pursuant to the charitable purpose exception under section CB4(1)(c) of the Income Tax Act 1994. Their case was based substantially on the decisions in Presbyterian Church of New Zealand Beneficiary Fund v C of IR (1994) 16 NZTC 11,185; [1994] 3 NZLR 363 and Baptist Union of Ireland (Northern) Corporation Ltd v C of IR (1945) 26 TC 335.
The trustees’ case failed because they could not establish that the purpose of the plan was consistent with the charitable purpose of the church. The benefits provided to the employees of the church by the plan were private. In addition, there was an insufficient nexus between those benefits and the charitable activities of the church. The case was distinguished from the Presbyterian case because the roles undertaken by employees of the church were more transportable to other employment than the role undertaken by specially trained ministers. The lifelong commitment principle which emerged in the Presbyterian case was not applicable in these circumstances.
The trustees had originally also argued that the refusal by the CIR to grant them the exemption was a breach of the Bill of Rights because in treating the plan inconsistently with the treatment of the Presbyterian plan, the assessment was discriminatory. The Court did not accept this submission, stating that the Commissioner is required to make assessments based on the application of the appropriate legal principles to a particular taxpayer. The mere fact that the Commissioner has made a different assessment because he considers one taxpayer differs from another, does not amount to discrimination and does not affect the assessment.
G v G (High Court, Wellington, 4 August 2003, Neazor J, AP319/02)
This case involved a matrimonial dispute, with the property in question including interests in a superannuation scheme. The husband unsuccessfully appealed against the matrimonial property and spousal maintenance decision in the Family Court. Although the assets were divided equally, he received a considerably smaller monetary sum than his wife on the basis that he would receive a substantial superannuation payment in the future. The family court judge’s decision was upheld by the High Court. The case is illustrative of the approach the courts may take in placing a current cash value on future superannuation benefits.
2.2 Significant Overseas Decisions
Ibekwe v London General Transport Services Ltd [2003]
EWCA Civ 1075
This case considered the extent to which an employer had a duty to inform an employee of proposed alterations to his workplace pension arrangements, and in particular the extent of the employer’s duty to inform the employee of the availability of a right to transfer of interest to another pension scheme, and the consequences of failing to exercise that right in circumstances where in all the circumstances the employee cannot be expected to be aware of the term unless it is drawn to his attention.
The Court held that there was either an implied term of the contract of employment or an equivalent duty of care in tort on the part of the employers in such circumstances, but went on to say that on the facts there was no implied promise to ensure the information was actually communicated to the employee, only to take reasonable steps to do so. This case is illustrative of the importance for employers offering superannuation as part of its employees’ terms of employment to take reasonable steps to ensure that those employees are adequately informed of their entitlements, regardless of the statutory obligation placed on issuers and promoters. In the New Zealand context, where prospectuses are not routinely provided to members but only the Investment Statement, is it reasonable to rely on the prospectus to disclose the right or entitlement if it is omitted from other disclosure documents? Further,
where a scheme trustee is under an obligation to provide information to scheme members (for example, the obligation to notify members in writing of details relating to transfers under section 9B(2B) of the Superannuation Schemes Act) the case supports the argument that in the absence of anything further, the trustee’s obligation is satisfied by taking reasonable steps to communicate the information to the members concerned, without needing to be absolutely certain the information had in fact been received.
Fisher & Others v Harrison & Others [2003]
EWCA Civ 1047, [2003] BPIR 1322
This case involved the construction of a forfeiture clause under a pension plan in the context of an agreement to assign a member’s benefits. The effect of the forfeiture clause in this case was held to be to forfeit the scheme member’s future rights under the scheme, but not any rights that had fallen due for payment. H was absolutely entitled to those rights and free to dispose of them as he saw fit. Any agreement to effect an assignment of future rights was unenforceable by reason of s 91(1)(a) of the Pensions Act 1995 (UK).
The case is illustrative of the principle that forfeiture rules cannot be applied so as to forfeit a benefit entitlement that has already vested in the member concerned.
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