Supreme Court considers trustee’s responsibility to disclose reasons

Discretionary trusts are widely used in modern-day business and are generally understood as efficient structures for asset protection and tax minimisation.  The obligations of trustees in administering trusts, particularly with regard to providing reasons for their decisions to beneficiaries, are less well understood.

Victorian Courts have historically sought to protect trustees from having to provide reasons for their decisions unless an allegation of impropriety is brought against the trustee.  This protection has extended to decisions regarding whether, and to what extent, to make distributions of income and capital to beneficiaries.  

The recent Victorian Supreme Court decision of Mandie & Mandie v Memart Nominees Pty Ltd [2014] VSC 290 clearly confirms that trustees remain protected from having to provide reasons for decisions made in administering discretionary trusts.

The plaintiffs in Mandie were beneficiaries of a trust established by a wealthy uncle, but had not received any distributions from the trust since its inception.  The beneficiaries queried the trustee as to why no distributions had been made to them and were informed that the trustee had considered their personal circumstances in deciding to make no distributions to them. 

The beneficiaries made an application to compel the trustee to provide details of the information it had considered when making its decision not to make any distributions to the beneficiaries.  The beneficiaries asserted there was a distinction between the information on which the reasons were based and the reasons themselves.  Alternatively, the beneficiaries argued that if they were found to be seeking reasons, the disclosure by the trustee of the fact that it had considered the beneficiaries’ personal circumstances, was enough to make those reasons examinable.

Macaulay J ultimately found the distinction sought to be drawn by the beneficiaries between the reasons and the information upon which the reasons had been based was illusory.  Further, while he acknowledged a trustee’s reasons for making a particular decision become examinable when such reasons are provided, the mere assertion that the trustee had considered the beneficiaries’ personal circumstances was not sufficient disclosure to support the beneficiaries’ application.  Accordingly, the beneficiaries’ application was dismissed.

While in Mandie’s case the trustee was entitled to protection from having to disclose its reasons, the case reinforces the principle that if a trustee provides reasons for any of its decisions made in administering a discretionary trust, those reasons become examinable by the Court upon the application of an affected beneficiary.  Accordingly, Mandie’s case serves as a reminder that trustees should be careful of providing information in response to requests from beneficiaries.

If you would like any further information please contact:

Richard Anderson
Principal
Harwood Andrews
T: 03 5226 8524
E: randerson@harwoodandrews.com.au