What is a former trustee’s obligation to provide trust documents to an incoming trustee?

In the long-running Rinehart family litigation (Rinehart v Rinehart [2022] NSWCA 66), the NSW Court of Appeal has ruled that a former trustee has obligations to promptly deliver documents and provide information to the trust’s new trustee.

Background

In 2011, Bianca Rinehart and two of her siblings sought to remove Gina Rinehart as trustee of the Hope Margaret Hancock Trust. However, in 2015, Gina resigned as trustee before the court application was determined.

Similarly, in 2015, the court ordered Bianca be appointed as the trust’s new trustee, vested all the trust property in Bianca and required that Gina produce and deliver all trust documents in her possession to Bianca within 28 days.

There has since been several interlocutory applications about what “documents of the trust” meant.

In 2020, Bianca filed a motion seeking production of two classes of trust documents in Gina’s possession. Gina opposed production, contending that the documents sought were not “documents of the trust”. The primary judge disagreed. Alternatively, Gina argued that:

• Bianca’s request for documents was an abuse of process, alleging that Bianca wanted to use the documents to progress personal claims against Gina in a pending arbitration
• the documents should not be produced until the arbitration is finished to avoid the risk that Bianca might impermissibly use the documents in her personal capacity during the arbitration
• she should be otherwise excused from producing documents.

The primary judge was not satisfied that there was an abuse of process, ordering production of the documents but staying the orders pending the arbitration’s conclusion. This appeal in the NSW Court of Appeal concerned whether the documents in the two categories should be provided to Bianca, as the trust’s new trustee.

Ownership of trust documents

The Court of Appeal stated ordinarily an outgoing trustee must deliver all trust documents to the new trustee.

To the extent that Gina owned documents as a trustee, the title had vested in Bianca when Bianca became the trust’s trustee. Therefore, Gina was required to deliver what she had ceased to own at law to the new trustee. There is no reason why ownership of documents is different from the ownership of other chattels.

What about trust documents that are co-owned?

The Court of Appeal stated that if Gina, as trustee of a trust, was a co-owner of a document, the document or a copy of that document was still required to be provided to the new trustee. This is because a document jointly owned by the trust and another person or entity does not cease being a trust document because another party has an interest in it.

Former trustee has a duty of co-operation

There is a duty of co-operation owed by the former trustee to the incoming trustee. This duty is to:

• fully and actively co-operate in transferring trust information by making all relevant documents and correspondence available promptly to the incoming trustee
• providing any explanation to questions reasonably raised by the incoming trustee.

Former trustee can be excused of obligations

The Court of Appeal accepted that there is a discretion to excuse the outgoing trustee of their obligation to transfer documents or information to the incoming trustee. However, the onus is on the outgoing trustee to show why this should be the case.

Argument that new trustee was going to misuse the trust documents

Gina argued that Bianca was going to misuse the trust documents, by deploying them in Bianca’s personal capacity in an arbitration. The Court of Appeal stated:

• it would not lightly infer that Bianca would misuse the documents
• that it does not fall on Bianca to explain her purpose in obtaining the trust documents – she is obliged to obtain them as an incoming trustee, just as Gina is obliged to hand the trust documents over
• if Bianca did misuse the documents in the arbitration, Gina would most likely oppose the documents being used in this manner. The appropriate venue for determining this issue (if it occurs) is in the arbitration.

The Court of Appeal held that any potential misuse of the trust documents is not a reason to withhold the production of documents.

Argument that Bianca did not immediately require the documents

The Court of Appeal overturned the primary judge’s reasoning that Bianca did not immediately need the documents and overturned the stay of the orders for production pending the arbitration’s conclusion.

The Court of Appeal stated that Bianca, as the trust’s trustee, is entitled to review trust documents and investigate any breach of trust. If a possible breach comes to her notice, she may need to investigate it. The Court of Appeal also said it is not an answer to an owner’s claim for possession of a chattel to say that the owner has no present need for the property.

The Court of Appeal therefore ordered that Gina deliver  the documents within the two classes in dispute and dismissed Gina’s application for a stay or dispensation for production.

Key takeaways

This case highlights three key lessons for trustees:

• an outgoing trustee has duties to provide documents and information promptly to an incoming trustee
• the former trustee has a duty to co-operate with the incoming trustee
• co-ownership of a document by a trustee and third party is not a valid reason to avoid delivery of the document to a new trustee.

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Authors: Kim Nguyen

Disclaimer
The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Kim Nguyen

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