The claimant – an irrevocable discretionary trust - is the sole beneficiary of defendant 1. – a discretionary foundation. The persons who were previously the beneficiaries of defendant 1 are identic with the beneficiaries of the claimant.
ii. Matter in dispute
Claimant’s legal representatives submitted an application to the defendant’s legal representatives requesting a distribution of EUR 7 Mill., notifying that this distribution was in line with the founder’s intent. After numerous discussions and exchange of correspondence between the parties, the defendants insisted on not taking a decision on the distribution.
In its application to the Princely Court of First Instance, the claimant sought the Court to firstly initiate the measures and issue the orders relating to Art. 552 § 29 para. 4 in conjunction with para 3 PGR, which are necessary for the correct administration and appropriation of the foundation assets of defendant 1, in particular to annul the decision of the foundation board not to meet the claimant’s distribution request as being against the statues and the law; alternatively to instruct the foundation board to decide formally on the distribution request by decision of the foundation board; secondly the Court should instruct, or recommend to, the defendant to meet the distribution request without undue delay.
2. Decision Princely Court of First Instance
The Court of First Instance dismissed the applications. The Court states that the findings would show without any doubt that no decision on the distribution request had been taken and therefore this application has to be dismissed, since something that does not exist cannot be annulled. However, the foundation board’s permanent refusal to adopt decisions may well constitute a reason for dismissal of the members of the foundation council. The supervisory Court should only intervene in discretionary decisions of the foundation if this discretion has been exceeded or misused, and thereby foundation assets are endangered. The fact that the foundation board does not adopt a decision does not endanger the foundation assets. The second request would clearly be a claim for benefit and has to be asserted in civil proceedings.
3. Decision Princely Court of Appeal
The Court of Appeal admitted the appeal and ordered the Court of first instance to decide anew following supplementary proceedings. The following statements were made:
- The range of supervisory instrument as part of foundation supervision is comprehensive and the list in Art. 552 § 29 para. 3 and 4 PGR only includes an exemplary list. The decision-making authority of the judge in non-contentious proceedings goes beyond that defined in § 405 ZPO.
- The decision of the first instance lacks all material observations regarding the justification of the distribution request or not. The first instance had been required to establish findings on correspondence, on the level of information of the members of the foundation board as regards the distribution request, further regarding incorporation and purpose of defendant 1., regarding (discretionary) beneficiaries and incorporation and purpose of the claimant.
- A constant refusal of a foundation board to make distributions to the only beneficiary may constitute an abuse of discretion. Even in case there is no enforceable claim of a beneficiary towards a foundation, in the medium to long term a discretionary beneficiary may expect distributions since the board is basically obliged to make distributions according to the economic situation of the foundation.
- The first instance stated that the refusal to follow a distribution request could never be examined by the Court since such a request would not endanger the foundation’s assets – and only in such case the Court’s interference in the management of the foundation could take place. This opinion is rejected. The respective case law cannot be applied to distribution requests since in case this opinion would be correct; such request could never be examined by the Court. The board of the foundation has to take into consideration the wishes expressed by the founder and also those of the beneficiaries. The board has to ponder the arguments brought forward and has to decide on an objective and independent basis.
- According to the purpose of the foundation at hand, there is no limitation for distributions. The foundation purpose also comprises distributions improving the financial situation of the beneficiaries.
- In order to finally assess whether any measures are required at all and, if applicable, which supervisory measures are required in line with the principle of propritionality the first instance has to extend the fundamentals of the facts after discussion with the parties – i.e. in the context of an oral hearing.
- Regarding the alternative request that the Court shall instruct the board of the foundation to proceed to a distribution of EUR 7 Mill. it is confirmed that this could be a justified means of the Court’s supervision since it clearly relates to the use of the foundation’s assets in regard to the purpose of the foundation. The requested instruction could be justified in case if the board’s refusal constitutes mismanagement of the foundation’s assets.
We will report on the continuation of the matter.