Guest v Guest
[2015] VSC 761
•22 December 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S CI 2014 03995
| PETER BENTLEY GUEST | Plaintiff |
| v | |
| VERNA ANNE GUEST and | First Defendant |
| PETER JOHN WALSH | Second Defendant |
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JUDGE: | Mukhtar AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 27 February 2015 |
DATE OF JUDGMENT: | 22 December 2015 |
CASE MAY BE CITED AS: | Guest v Guest and anor |
MEDIUM NEUTRAL CITATION: | [2015] VSC 761 |
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DISCOVERY ― Pre action discovery ― Administration of trusts ― Discretionary trusts ― Beneficiary’s questioning of appropriation of trust assets to his possible detriment ― Concern whether ex directors of trustee procured breach of trust ― “Reasonable cause to believe that the applicant has or may have the right to obtain relief in the Court”― Standard of objective evidence or certainty required to attract Court’s discretion ― Interrelationship with the law of trusts concerning a beneficiary’s right to information from trustee ― Supreme Court General Civil Procedure) Rules 2015, r 32.05
TRUSTS AND TRUSTEES ― Discretionary trusts ― Beneficiary’s entitlement to information ― Legal foundation for such an entitlement ― Content and limitations of entitlement ― Interrelationship with rules of court permitting pre action discovery of documents in prospective civil proceedings
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr R M Garratt QC with Ms A Folie | Hall & Wilcox |
| For the Defendants | Mr J W S Peters QC with Ms G Coleman | Holding Redlich |
HIS HONOUR:
This is an application for pre-action discovery of documents under rule 32.05. That rule empowers the Court to order a person to give discovery of documents to help an applicant decide whether or not to sue that person. It is a powerful rule which can be incursive; and it calls for much care.
I commence by taking leave to repeat some introductory remarks recently made about this discretionary rule in Hunter v Australian Football League.[1] Documents are a person’s property and the rule does not offer a licence, before a case is even started, to invasively seek documents to see if there is a case to be made against that person. The rule requires as a first step that the applicant show reasonable grounds to believe that he has, or might have, the right to obtain relief. For that first step, he is not required to show precisely what cause of action he may have or to show a prima facie case. Rather, he has to show the objective facts on the basis of which he reasonably believes that he may ― note, may ― have a right to obtain relief. That way, the rule is to be seen as the court lending its processes to help right a possible wrong. So much depends on the circumstances; the relationship of the parties (critical in this case); the nature of the case being contemplated; and what the applicant already knows or can allege. If the prerequisites of the rule are made out, and benefit can be shown, then ordinarily a Court will be disposed to make an order, assuming the documents sought are shown to exist or may be supposed to exist, and the net is not thrown too wide (an energised issue here).
[1][2015] VSC 666.
There is a long history to this application, and it is contested stringently. The relationship here is one of trustee and beneficiary in discretionary trusts within a family. There were two corporate trustees. There were seven discretionary trusts. Each trust has vested, and the trustee companies have been deregistered. The applicant seeks pre-action discovery against two former directors of the trustees, one of whom is his step mother and with whom his relations are described as being very difficult. He cannot allege but says he is “concerned” ― a word used by him repeatedly and seized on by the respondents as weak and inadequate for the purposes of rule 32.05 ― that trust assets might have been wrongfully divested throughout a time when he suspects his stepmother created barriers between him and his father and, he suspects, she had had influence over his ailing father and his financial affairs. He wants to see if assets were wrongfully transferred from discretionary trusts in which he was a specified or potential beneficiary into trusts in which he was not.
The applicant does not say this is a prospective “knowing assistance” case under the second limb of the renowned rule in Barnes v Addy,[2] for that requires knowledge in a dishonest and fraudulent design on the part of the trustee. The applicant says he is looking for accounting type documents still held by the directors to gain an explanation or a better understanding of the administration of the trusts and the accounts with a view to deciding whether to bring a case against the directors for knowingly inducing or procuring a breach of trust as recognised in authorities predating Barnes v Addy in 1874 which do not require proof of dishonest and fraudulent design.[3] Alternatively, he contemplates an action for “knowing receipt” under the first limb in Barnes v Addy; that is, receiving trust property knowing that it had been distributed in breach of trust.
[2](1874) LR 9 Ch App 244.
[3]See Farah Constructions v Say-Dee (2007) 230 CLR 89, 159 [161].
There is a body of law concerning a beneficiary’s freestanding entitlement to documents or information from a trustee, and more pertinently, the limitations of that right. Here, there cannot be an administration action in the Court based upon that right to information. The trusts have vested and the trustee companies have been de-registered. Rather, it is an application for information under a discretionary procedural rule of court against two ex-directors of the trustee. Section 601AD(5) of the Corporation Act requires the directors of a deregistered company to keep the company’s records for three years after deregistration, which occurred in October 2014.
The affinity by subject matter between the law of trusts as it concerns a beneficiary’s right to trust information and this discretionary procedural rule was to my mind a hovering consideration. But not so for the applicant who contended that the right to information under the law of trusts was an unnecessary and potentially misleading distraction. That was because the pursuit here was in a litigation or contentious context. The contemplated case was for maladministration; that is, looking to see if the directors administered the trust for improper or ulterior purposes. If such a case was alleged, the administration and accounts of the trust would become examinable by the Court. Ordinary discovery would be part of the litigation process. But to the contrary, the respondents contended adamantly the application was an impermissible attempt to circumvent the principles originating in Re Londonderry’s Settlement (Peat v Walsh)[4] concerning the limitations on a beneficiary’s right to obtain trust information, and worse still, was trawling for information.
[4][1965] Ch 918.
To understand this stand-off, I need to expose the facts which are a little complex. They come predominantly from the applicant as there is no affidavit material from the respondents personally who, I discern, may have taken the view that on the applicant’s own materials, and given the legal limitation on a beneficiary’s right to information under the law of trusts, the application ought on principle not be entertained or as a matter of discretion or ought be refused. That is, they would say consistently with the very nature of the office of trustee, particularly discretionary trustee, the beneficiary has no place to require the trustee to divulge documents to scrutinise their decisions made in the administration of these discretionary trusts.
The trusts
The applicant is Peter Bentley Guest, who by his own description, comes from a background of significant family wealth, having its origins in the well-known furniture retailing business Guests Furniture as founded in 1925 by his grandfather, John George Guest. On John’s death in 1954, the business devolved to John’s two sons Alan Guest and Bentley Guest as managing directors. Peter Guest is the son of Bentley and Margaret Guest. His only sibling was a brother Stephen Wyatt Guest. After his mother’s death, his father became re-married in 1989 to Verna Anne Guest (who throughout the materials is referred to as Anne, to which I shall adhere). She is the first respondent to this application and, it ought to be mentioned, she is 84 years old. Peter’s brother Stephen died in 1995, unmarried and without children. Thus Peter is the only surviving offspring. Bentley Guest died in 2013. Anne is a co-executor of his deceased estate.
Peter Guest says that a large number of trusts were set up in his father’s lifetime to manage the family’s assets and wealth. His father had an accountant and adviser until 2003-2004, a Mr Laurie Heale, who told him he had personally set up at least 60 family trusts for Bentley Guest. But, for this application there are seven discretionary trusts in which Peter is named as a beneficiary or as a potential beneficiary by reference to his father or his uncle Alan. I need to identify each of them and state certain facts.
The first was the B Guest Family Trust. This was established by deed dated 4 June 1976. As from December 1999, the trustee was Nuben Pty Ltd. The trust vested on 30 June 2010. The trust assets of $22,833 were distributed to Bentley Guest.
The second was the SW Guest Trust. This was established by deed dated 4 June 1976. As from December 1999, the trustee was Nuben Pty Ltd. The trust vested on 30 June 2010. Peter Guest received a capital distribution of $157,567. His three children received $50,000 each. That makes a total of $307,567.
The third was the PB Guest Trust. This was established by deed dated 4 June 1976. Peter is a specified beneficiary. As from December 1999, the trustee was Nuben Pty Ltd. The trust vested on 30 June 2010. There was a distribution of $265,500 to Peter Guest and $88,500 to each of his three children, making a total of $531,000. There was a distribution of $531,000 to Bentley Guest.
The fourth was the Stephen Guest Trust. This was established by deed dated 3 September 1985. As from December 1999, the trustee was Nuben Pty Ltd. The trust vested in May 2009. A capital distribution of $200,000, being the total trust assets, was made to Peter Guest.
The fifth was the EW Guest Settlement No. 2. This was established by deed dated 14 April 1955. As from December 1999, the trustee was Nuben Pty Ltd. The trust vested on 11 December 2009. A capital distribution of $50,000 was made to Bentley Guest. As sole remaining beneficiary, Peter Guest received the balance of the trust assets in the sum of $58,095.
The sixth was the NEB Family Settlement. This was established by deed dated 30 June 1980. As from December 1999, the trustee was Nuben Pty Ltd. There was a capital distribution of $10,000 to Bentley Guest during the financial year ended 30 June 2009. The trust vested on 30 June 2010. The remaining balance of $312 was distributed to Bentley Guest on vesting.
The seventh was the BG Family Trust. The trust deed is not in evidence. The information before the Court is that the trustee was Sirben Pty Ltd. The trust vested on 30 June 2010. The distributions were $826,713 to Bentley Guest; $259,574 to Peter Guest; and $86,524 to each of his three children. That makes for a total of $519,146 to Peter’s family.
From those figures, the total amount of the vesting distributions to Peter and his three children in 2009 and 2010 was $1,765,808.
After vesting, the two trustee companies were deregistered under the Corporation Act in October 2011.The officers of Nuben Pty Ltd as at the date of its deregistration were: Bentley (director from 17 December 1999 to 5 October 2011); Anne (director from 19 April 2004 to 5 October 2011); the second respondent, Peter Walsh (director from 28 March 2009 to 5 October 2011); and Paul Briglia of Briglia & Co (company secretary from 26 April 2004 to 5 October 2011). The officers of Sirben Pty Ltd as at the date of its deregistration were: Bentley (director from 7 March 1989 to 5 October 2011); Anne (director from 19 April 2004 to 5 October 2011); Peter (director from 28 March 2009 to 5 October 2011); and Paul Briglia (company secretary from 26 April 2004 to 5 October 2011).
On the income side, Peter Guest’s affidavit states that from 1999 to May 2007 he received income distributions from the trusts of about $4,000 per month. That is a total of about $400,000. Income distribution to him stopped in May 2007 under a new arrangement created in the following circumstances. In late 2006, Peter Guest sought to take advantage of an opportunity to make non-deductible superannuation contributions up to $1 million, and asked his father for a distribution of $1 million. Avoiding reference to details, an arrangement was put in place by accountants that Peter Guest describes as legalistic and onerous, but to which he agreed. It is only fair that I refer to some of the information about that arrangement as stated by the respondents’ lawyers in correspondence leading up to this application.
It is said that in April 2007 (that is when the $1 million proposal for superannuation was being arranged) control of the SW Guest Trust and the PB Guest Trust was given to Peter Guest. Those trusts between them held net assets of $1,549,070. According to the correspondence, Peter Guest took control of those two trusts on condition that monthly income payments to him from other trusts would cease from 1 May 2007. This was to carry out an intention of Bentley Guest to give his son a financial independence from his father.[5] Before then (that is, from 1998 to 2006) there is information that the total income distributions from those two trusts over which Peter was given control was a total of $784,027. When added to the asset value of those two trusts of $1,549,070 it gives a total financial benefit of $2,333,097 between 1998 and 2007 from the two trusts.
[5]See exhibit PG 21 to the affidavit of Peter Bentley Guest sworn 28 July 2014.
That gives an idea of Peter Guest’s financial benefits. Based on the materials in evidence, they can reckoned to be at least $4 million including vesting distributions.
Anne’s involvement
Bentley and Anne were married in 1989. Peter Guest’s affidavit says that in around 1999 Freedom Furniture bought part of the Guests Furniture business from Bentley and his brother Alan. From about 2000 Bentley’s health began to deteriorate. He says that in 2002 Bentley sold to Alan his remaining interest in the Guest Furniture business. The commencement of Anne’s directorship of both the trustee companies in 2004 is a convenient reference point now to narrate the basis upon which Peter contends she came to exert influence over Bentley or his financial affairs.
He says from about 2000 Bentley was in and out of hospital. By August 2003 he had effectively lost the use of his legs and was dependent on Anne for his physical needs. Peter says this was when his relationship with Anne, once amicable, began to deteriorate. He says she made it increasingly difficult for him to contact his father. His phone calls and his correspondence, he says, went unanswered. He then says by early 2004 Anne went about changing his father’s professional advisers. She told Peter she did not trust Bentley’s accountant, Laurie Heale, a man who he says had since the 1950’s been acting as his father’s accountant and trusted adviser, and also acted for his uncle Alan, and had also acted for Peter Guest until 2003. Subsequently Bentley disengaged Laurie Heale. His father told him that he was placing his affairs in the hands of Paul Briglia (who also became the secretary of Nuben Pty Ltd) and that he was engaging Peter Walsh as his lawyer. Paul Briglia was Anne’s accountant. Peter Walsh was Anne’s lawyer. Peter Guest says:[6]
These events made me concerned about the administration of Bentley’s financial affairs and the administration of the family trusts. I was concerned that Anne may have been asserting control over Bentley’s financial affairs and the family trusts. I was also concerned that my interests may not have been protected.
[6]See affidavit of Peter Bentley Guest dated 28 July 2014 at paragraph 24.
This moved Peter Guest to meet with and express his concerns to Mr Edwin Gill of Perpetual Trustees who had been managing the investments of some of the Guest family trusts and some of Bentley’s personal financial affairs. They discussed arrangements to restructure the trusts which were put to Bentley for discussion. Bentley seemed initially receptive to the idea, but then refused to accept it. Come August 2004, a new arrangement was proposed (not by Peter) after lawyers had reviewed trust deeds. This involved establishing a new trust, the corporate trustees of which would involve Bentley, Anne and Peter; the income beneficiaries would be Bentley, Anne and Peter; and the capital beneficiaries would be Peter and lineal descendants. The idea was to vest existing trusts by transferring all cash assets to Peter who would then gift the cash assets to the new trust. Peter says he was uneasy about all of that, but says he co-operated to maintain the peace. Yet, he says, the arrangement did not proceed after the documentation was signed, which he attributes to Anne’s influence. He says:
Partly as a result of the events outlined above, and partly as a result of Anne’s conduct in limiting my access to Bentley, I became increasingly concerned that Anne was exercising influence over Bentley. It was my impression that Anne may have been taking steps to assert control over assets of the trusts for her own benefit.
Between 2004 and 2007 Peter says it was increasingly difficult to speak or gain access to his father, whether in hospital or at home. Within that time there was the arrangement for the $1 million superannuation payment to which I have already referred. In dealings with Briglia, Peter Guest quotes him as saying that he Briglia was acting on instructions as conveyed to him by Anne. It seems that the mere presence of Walsh at meetings with Briglia aroused Peter’s concerns that the trusts may have been run in a manner that was not in the best interests of the beneficiaries, namely him. He said that whilst he had his misgivings about the trusts he did not agitate his concerns any further given the state of his father’s health. The point had been reached where his relationship with Anne became very difficult and, he says, he became unable to contact his father at all. Following the receipt in May 2007 of the lump sum payment of $1 million Peter says he did not receive any further distributions until the vesting of the trusts. That fact, or its innuendo, has to be approached with great care because of other information in the materials, to which I have referred, that states that Peter took control of the PB Guest Trust and the SW Guest Trust in April 2007 on condition that monthly payments would cease from May 2007 in order to give him financial independence.
Pausing here, much of this evidence is about impressions and concerns and sensibilities based on family dynamics. It has the apparent purpose of forensically setting the scene for showing “reason to believe” under rule 32.05 that he might have a claim against Anne. But none of this extended to Peter Walsh against whom no such prejudicial facts are put forward unless the Court is being asked to suppose that as Anne’s lawyer he too would prefer Anne’s interests or was being influenced or overborne by her to be a part of the maladministration.
On this forensic dimension of the case, neither of the respondents has sworn an affidavit personally. Counsel says that serves to heighten concerns. But, an affidavit from Paul Briglia says in essence that on he would attend Bentley Guest personally on any matters of moment and take instructions from him personally. He says he never formed the view that Bentley had become incapable of making decisions or lacked an understanding about his financial affairs. He puts a completely different complexion on the superannuation proposal as portrayed by Peter. He says Anne was willing to support Peter’s proposal, but Bentley Guest was not. He says the decision to transfer control of the two trusts to Peter on certain conditions was based upon Bentley instructions, as was the condition that monthly distributions to Peter would cease. The purport of this affidavit coming from someone who by this time seems to have had more access than Peter, is to neutralise any suggestion that Bentley Guest was incapable of making decisions and that instructions were coming from Anne, not him.
To the same effect is an affidavit from Edwin Gill, now retired but previously a financial advisor at Perpetual Trustees with seniority and managerial authority. He also dispels the attempt to portray the change of advisors as part of Anne’s imperiousness. He says he was the one that introduced Paul Briglia to Bentley and Anne because he had formed a good impression of him as “diligent, thorough, principled and charged modestly”. Mr Gill states that Peter Walsh was a solicitor who Perpetual recommended to its clients for wills and estate work. Overall, he says:
During the time I acted for Mr Guest, I regularly attended meetings with Mr and Mrs Guest at their home, where I would receive instructions directly from Mr Guest. I would also have Mr Guest’s instructions confirmed with me before Perpetual implemented any investment. I did not have any concerns that Mr Guest did not have control over his financial affairs.
As for the discussions with Peter Guest about rearranging the trusts, in essence Edwin Gill explains that he had no authority to reach any form of agreement with Peter Guest and his role was confined to discussing and taking take any proposals back to Bentley Guest. He says he did that; and was instructed later by Bentley Guest that he did not wish to accept Peter’s proposals.
He goes on to expose the desire of Bentley Guest, naturally enough, to ensure that Anne was adequately provided for financially after his death, saying:
While I was formally retained by Mr Guest only, the scope of my role involved, at Mr Guest’s request, providing investment advice for both Mr and Mrs Guest, and also with respect to a number of trusts. Mr Guest generally considered his investments to be the joint investments for him and Mrs Guest, although he did in a number of cases want investments to be made in Mrs Guest’s name alone. At various times throughout my engagement, Mr Guest told me that he was concerned about being able to provide for Mrs Guest after his death.
He also says that by his observation, the relationship between Peter and his father “did not appear to be close” and that Bentley had told him that his son “was after his money”, or words to that effect. The point of this, as I see it, is to counter–portray the forensics to show that it was not, as Peter would have it, a case of Anne acting in her interests at the expense of Peter, but as his father Bentley as the source of wealth looking to create financial independence or reduce a sense of entitlement for his son, and ensure financial provision or security for his wife Anne.
It is not the Court’s function to make any assessments about where the truth lies in the accounts given about interpersonal relationships and the role of advisors. There are no facts put forward to show improper or unnatural influence or obliquity by a wife over a husband. The affidavit evidence from both sides is couched in a measured way or tone I think to avoid a showing of antipathy. The matter of fact evidence from Edwin Gill and Paul Briglia is enough to make me think that if there was no other evidence in this case to support “reason to believe” then Peter’s evidence of his ‘’impressions” and “concerns” about his stepmother, of itself, does not create an adequate objective foundation to show a reason to believe that he may a right to obtain relief against the directors. It gives the Court an understanding of the subjective basis of his concerns. I would say the same for the submission that the absence of any affidavit from the directors heightens his concern.[7] What could Anne say that would not be adversarially discounted as being self-serving? The respondents’ silence is compatible with their role as the trustee’s directors and their position that how and why they made discretionary decisions about trust affairs is a matter for them, and the time for any engagement is if and when a case is made against them for procuring a breach of trust; and until then it is a matter of Peter to show the Court a basis for pre-action orders.
[7]Cf Paxus Services Ltd v People Bank Pty Ltd (1990) 99 ALR 728, 733.
What matters I think is an assessment of the objective basis for saying there is “reason to believe” according to evidence about how or in what way there was maladministration of the trusts; the strength of the grounds; and if it attracts in some way the law regarding limitations on a beneficiary’s right to information.
Part of the context included the resistance shown by the respondents to the out of court request for documents before this application was made, to which I now turn.
The pursuit of information – the first round
The pursuit of information was by correspondence from Peter Guest’s lawyers commencing in February 2009. His lawyers wrote to Briglia who was then the secretary for Nuben Pty Ltd as well as the accountant for Bentley Guest, seeking information about six of the trusts (excluding the BG Family Trust).[8] There were seven categories of documents sought to which I shall not make reference now, but they come to find their way into the 18 categories of documents sought on this application. Correspondence ensued in which it was asserted that Peter had an entitlement to the information sought[9] on the basis of “much case law supporting the entitlement of beneficiaries to obtain the sort of information that has been requested”.[10] The request for information was based on Peter Guest not receiving monthly distributions since May 2007. But as Briglia pointed out in correspondence, and as I have recounted already, he was receiving a monthly distribution until May 2007 at which time he agreed to dispense with the monthly transfer in exchange for a lump sum payment of over $1 million to make a superannuation contribution. Briglia did not refuse to give any more information as sought, but said he would seek Bentley’s instructions when he was in better health.
[8]Exhibit PG 14.
[9]Exhibit PG 16.
[10]Exhibit PG 18.
Correspondence from Peter’s lawyers asserted firmly the content of the law of trusts that, absent special circumstances, a trustee who is requested to provide access to trust documents ought to prima facie provide such access.[11] By April 2009, the respondent’s lawyers had instructions to provide copies of the accounts for the six trusts.[12] (I think they are “trust documents”.) They said they had access to certain of the accounting documents dating back to 2000, but not all, and in particular did not have copies of tax returns. They reasserted the fact that the income distributions to Peter Guest ceased in March 2007 because by arrangement, Peter Guest was given control of the SW Guest Trust and the PB Guest Trust having assets of $1,549,070 on condition that monthly payments would cease as from May 2007 so as to create financial independence from the affairs of Bentley Guest.
[11]See exhibit PG 20. Reference was made to amongst other cases Dura (Australia) Constructions Pty Ltd v SC Land Richmond Pty Ltd [2007] VSC 272.
[12]Exhibit PG 21.
The outcome was that in April 2009 Nuben Pty Ltd provided financial statements for the six trusts mainly from 30 June 1999 to 30 June 2008. I would regard these as “trust documents” an elusive appellation to which I will return later. According to Peter Guest the financial statement for each of those trusts stated that the net total value of the assets was about $6 million made up as follows:
(a) B Guest Family Trust, as of 30 June 2008: $2,297,836;
(b) SW Guest Trust, as of 30 June 2008: $2,248,392;
(c) PB Guest Trust, as of 30 June 2008: $1,153,548;
(d) Stephen Guest Trust, as of 30 June 2008: $200,000;
(e) EW Guest Settlement No. 2, as of 30 June 2008: $55,094;
(f) NEB Family Settlement, as of 31 March 2005: $10,312.
That was April 2009. The Stephen Guest Trust vested in May 2009 for which Peter was given a cheque of $200,000 representing the capital distribution. The EW Guest Settlement No. 2 vested on 11 December 2009 for which Peter Guest was given a cheque as sole remaining beneficiary of $58,095 as a capital distribution. The four other trusts vested on 30 June 2010 and I have given the figures on distribution already. It appears the principal basis for Peter’s concerns is the “depletion” of the trusts’ capital assets from that $6 million figure in 2008 to the amounts as vested in 2009 and 2010.
On 14 September 2009, Peter Guest’s lawyers made another request for trust documents.[13] Avoiding the details, the letter sought the financial records of eight trusts of which Peter asserted he was a beneficiary or in a class of beneficiaries up to the date of vesting or 30 June 2010 and a summary of the distribution of benefits. He also sought information whether there were any other trusts in a different group of which he was a beneficiary or within a class of beneficiaries, and a summary of the distribution of benefits. That was met in 24 November 2010 with a letter from the trustee’s lawyers enclosing final accounts for eight trusts (including the PB Guest Trust and the SW Guest ) and final accounts for the BG Family Trust (which was in a different group) and information about distribution of the trust assets.[14]
[13]Exhibit PG 27.
[14]Exhibit PG 9.
Peter Guest persevered. His lawyers requested in 13 December 2010 copies of all financial records of each trust from inception to the vesting date and contended it was insufficient for accounting documents and information to only relate to the time that the relevant trusts were vested.[15] I cannot be sure, but on my examination of the available deeds, inception takes us back to 1955, 1976 and 1980.
[15]See paragraph 63 of Peter Guest’s affidavit sworn 28 July 2014.
There was no response to that letter but Peter Guest says he decided to take no further action because of his father’s poor health and his wish to avoid putting any further stress on him. His father died in September 2013.
The pursuit of information – the second round
After a three year abeyance, the request for information revived in February 2014 at which time Messrs Holding Redlich became the lawyers acting for the estate of Bentley Guest and for the respondents who were also co-executors. Peter Guest’s lawyers wrote to say they were “…looking to receive sufficient information for the purposes of making an informed assessment of Peter’s position and then being able to promptly conduct a dialogue with you to try to reach an agreement on a proportion of the assets being made available to Peter.”[16] Without going into details, Peter Guest was now seeking details of valuations of assets within his father’s deceased estate; resolutions of the trustees concerning vesting and consequential distributions of income and capital; copies of accounts for the five financial years for trusts whether vested or not; details of assets held by the trusts in the last five or seven years; and details of any property transferred by Bentley from 1 January 2000 (which, as I follow the facts, was soon after the sale of the business to Freedom Furniture and when Bentley’s health began to deteriorate.) There is an assertion in the enquiring correspondence, not substantiated, that certain real estate was sold in 2004 for approximately $23 million.[17]
[16]Exhibit PG 28.
[17]Exhibit PG 28.
In response, in March 2014 the lawyers for the deceased estate and the respondents provided first, a draft inventory of assets and liabilities for the deceased estate which showed assets of $625,231 and a liability (in the form of a loan from Anne) in the sum of $550,000.[18] Peter Guest regards that as a very small estate for a man of considerable financial means in his lifetime who did not need to borrow from his wife. Secondly, they identified the nine trusts of which he was a specified beneficiary or was named within the class of general beneficiaries. They provided copies of resolutions vesting the trusts and the accounts for nine trusts. He was given the accounts for the five financial years prior to the trusts being vested. They took the position that they could not provide information relating to trusts in which Peter was not in the class of beneficiaries without an understanding of the legal basis upon which a non-beneficiary was legally entitled to such information. I do not think that was unreasonable. Likewise, the estate was unwilling to provide details of property transfers from Bentley as from 1 January 2000 without an understanding of the legal basis on which Peter Guest contended that he had such an entitlement. I do not think that was unreasonable. That is where the request for documents and information was left off.
[18]Exhibit PG 29.
The important thing to see, I think, is that the provenance to this application was a freestanding request for information under the law of trusts to which there was a response.
Peter Guest’s next move was to engage a forensic accountant, Mr Garry Fettes of Rogers Reidy to review the balance sheets and profit and loss statements together with certain notes to the accounts and to “report on any discrepancies or anomalies in the accounts.” To my mind, that instruction is not clear in its width, and appears to be directed to the composition of the accounts on their face. On that basis, Peter Guest presented the accountant with quite a request for, the opening part of the paper states: “1.2 Peter Guest is concerned to establish what happened to the family wealth and to follow the funds through the trusts, if possible.” I think that was a broad request, bound to attract a necessity to see further documentation, and which has come to shape the breadth of the documents as sought in this application.
The report of the forensic accountant
The report is dated 14 May 2014. I shall not refer to it in any detail. Counsel for the respondents objected to the Court receiving the report into evidence. It was submitted that the report did little more than state opinions without properly or meaningfully laying out the factual basis upon which those opinions had been formed. There was force in that submission. In addition, I was taken to a number of its conclusions which were exposed as being based upon controversial facts or at least unsubstantiated facts. There was force in that submission. In essence, the respondents’ submission was that the report did not expose grounds for seeking relief as required under rule 32.05 but identified a host of financial or accounting documents to in effect conduct an audit or verification of the trust accounts to see whether the foundations of a case could be found. This was really the theme of the resistance for the application overall. That is, even accepting some fishing is countenanced under the rule, this was an intolerable trawling exercise in a situation where Peter Guest was in no position to show objectively that he had grounds for reason to believe he might have a case. I allowed the report to be received into evidence, viewing its shortcomings as going to its cogency rather than its admissibility.
One matter calls for special attention. The accounting search for “what happened to the family wealth” was based upon a controversial fact which Peter Guest really is in no position to substantiate. Paragraph 1.3 of the paper states: “We understand that Bentley Guest was a man of financial substance, that he re-married in 1989, that he was one of the owners of Guests Furniture and that he sold his interest in that business to his brother in 2004 for approximately $23 million.” One would think for such a cardinal assumption underlying this whole accounting exercise that there would have been far more satisfactory foundation laid for the assertion that Bentley received $23 million in 2004. Peter Guest’s affidavit says that in around 1999 Freedom Furniture bought part of the Guests Furniture retailing business from Bentley and his brother Alan and “the business was purchased with a combination of shares and cash but I do not know the total value of the purchase.” He goes on to swear that “in 2002 Bentley sold to Alan his remaining interest in the Guest Furniture business. At the time of the purchase I did not know the exact value of the purchase. Around seven months ago, Alan [Bentley’s brother] told me that he paid Bentley around $23 million for Bentley’s share of the business.” There is no more evidence to substantiate this. To the contrary, there is evidencing casting real doubt on it. Robert Briglia, who became Bentley’s accountant in 2003 or 2004 and was the secretary of Nuben Pty Ltd, has sworn an affidavit in which he says:
I have reviewed the information disclosed in the income tax returns of the B Guest Family Trust, the S.W Guest Trust, and the P.B Guest Trust, which were prepared by Laurie Heale…[Bentley’s previous accountant and advisor], for the 2003 financial year. From this review, I believe that Mr Guest received $9,955,940 from the sale of Guest Furniture.
It is not clear to me if he is there referring to the amount received from Freedom Furniture for what Peter Guest describes as the partial sale or whether it is a reference to the totality of any receipts received by Bentley for the sale of his interest in Guest Furniture one way or another, including to his brother Alan. There was no evidence from Alan Guest. The solicitor acting for the respondents, Mr Howard Rapke, has also sworn an affidavit in which he exhibits a letter sent to Mr Noel Batrouney, the solicitor for Peter Guest, dated 5 May 2014 (that is, shortly before the accountant’s report) looking to correct a misunderstanding about the amount received from the sale. I shall quote the informative letter in full:
We refer to your email of 7 April 2014.
I confirm that my clients are content to engage in a dialogue with your client. I also confirm that our letter to you of 26 March 2014 contained all of the information to which your client is entitled as requested by you.
We are instructed that your client’s understanding in respect of the sum of money received by Bentley Guest in 2004 is misguided and incorrect. It was reported in the press that Freedom acquired the Guest Group for the sum of $22.4 million. However, Bentley Guest did not receive this entire sum himself.
We are advised by Paul Briglia (Bentley’s accountant) that at most Bentley Guest received $9,955,940 from the Freedom acquisition. Further, we are instructed that Bentley received this sum over a period of time, and not as a lump sum.
We are instructed that the monies received by Bentley Guest were distributed as set out in the table below.
Transfer of interest in Guest Group Trading Unit Trust to Threeways Investments Pty Ltd B. Guest Family Trust $1,721,977 S.W Guest Trust $1,721,977 P.B. Guest Trust $1,721,977 Net capital profits from sale to Freedom B. Guest Family Trust $1,198,877 S.W Guest Trust $1,203,527 P.B Guest Trust $1,203,525 Buy-back of Freedom shares Net capital gain from Freedom buy-back of shares $249,280 Unfranked dividend received as part of the Freedom buy-back of shares $934,800 TOTAL $9,955,940 Your initial letter to us did not make any enquiries in relation to the sale of Guest Furniture or the proceeds of the sale that were received by Bentley Guest.
In summary, we have now fully and frankly answered the questions raised in your correspondence of 19 February 2014 and 7 April 2014 and we have also provided to you a copy of the documentation to which your client is entitled.
Please advise should your client have any further questions.
I am not sure, and the applicant’s case and submissions do not give clarification, but it is still unclear unclear whether the sale to Freedom was for only part of the business, and whether it is right to say that it was a partial sale only, and that Bentley subsequently sold his remaining interest for $23 million to his brother Alan.
It leads to my view that this was an infirm basis upon which the accountant was been engaged. Peter Guest is in no position to assert such a substantial figure. One could look to Briglia to be in a better informed position, and he has said that Bentley did not receive received $23 million.
The accounting report concerns itself with disposal of assets in the PB Guest Trust. It exhibits as a schedule a full list of the assets sold in 2002 and 2003, they being the years in which Heale was the accountant. Two other schedules deal with asset sales for the SW Guest Trust and the B Guest Family Trust. Then these opinions are stated:
3.1.2In our opinion these sales most likely represent a disposal of Bentley Guest’s interests in the Guest Group from Trusts in which Peter Guest was a beneficiary into other entities in which Peter was not a beneficiary.
3.1.3Further, given that we have been advised that Bentley’s interests in the Guest Group were sold in 2004 for approximately $23 million it appears that the transfers that occurred in 2002 and 2003 were at significantly under value.
The statement in paragraph 3.1.3 is based upon the controversial or unsubstantiated fact concerning the sale price of Bentley’s interests for $23 million. Assuming as they do that $23 million was received, it is only logical to think that if that amount in aggregate did not find its way into the trusts in which Peter was interested then it presumably went into trusts in which he was not interested. The assumption seems to be that all capital in the trusts would flow to Peter Guest and his children only. That assumption is not substantiated. Mr Gill’s affidavit, he being the person discussing the arrangement of the trusts with Bentley, does not support any such assumption and indeed took instructions from Bentley Guest to reject a proposal that Peter and his children would be the only ones to receive capital distributions on the vesting of the trusts.
Elsewhere in the report it appears that the accountants are seeking details of certain distributions or documentary evidence of such distributions, when there was already exhibited to Peter Guest’s affidavit written evidence about the amounts distributed to which beneficiaries. This refers to paragraph 3.1.7 and 3.1.8 (dealt with in exhibit PG 9); paragraph 3.2.1 (dealt with in exhibit PG 9); and 3.3 (dealt with in exhibit PG 23); 3.6.2 and 3.6.3 (dealt with in exhibit PG 26).
Elsewhere the accountants report picks up discrepancies in the financial statements. These are mainly instances of what are described as “unexplained negative revaluations” and “unexplained capital transfers” and “unaccounted for distributions” and unexplained loans”. Thus as I understand it the accountant is looking for underlying information to explain entries in the accounts.
On the basis of the accountant’s report, the applicant seeks the following documents concerning the seven trusts from 17 December 1999[19] (in the absence of another date as specified) to 4 August 2014 (the date of the application):[20]
[19]The year 1999 is when there was a partial sale of the Guest Furniture business to Freedom Furniture.
[20]The list of documents sought was ultimately modified after it was recognised by the applicant that the list included documents that had already been provided in pre-application correspondence.
1The balance sheets for The BG Family Trust for the financial years ended 30 June 2000 to 30 June 2005.
2 The following profit and loss statements:
(a)The Stephen Guest Trust: financial years ended 30 June 2005 to the date of vesting;
(b)The EW Guest Settlement No. 2: financial years ended 30 June 2007 and 30 June 2008;
(c)The NEB Family Settlement: financial years ended 30 June 2004, 30 June 2005 and 30 June 2010; and
(d)The BG Family Trust: financial years 30 June 2000 to 30 June 2005.
3 Electronic accounting files.
4 Journal entries.
5 Cashbooks and supporting bank statements.
6Meeting minutes of the trustee of each Trust (redacted for purely deliberative material only).
7 Distribution statements.
8 Documents evidencing any asset valuations.
9 Any contracts for any asset purchases or sales.
10Documents evidencing any loans made by or made to each Trust.
11Any other working papers of the trustee of each Trust (redacted for purely deliberative material only).
12Documents evidencing distributions or transfers of any capital or income made by each Trust.
13 Lists of assets held by each Trust.
14 Lists of assets disposed of by each Trust.
15Copies of tax returns of each Trust from and including the financial year ending 30 June 2000.
16Deed of settlement of the BG Family Trust and any documents evidencing changes to the trust deed.
17Documents evidencing any changes to the trust deeds of any of the Trusts (other than the BG Family Trust) after 1 January 2000.
18Documents evidencing any changes to the beneficiaries of any of the Trusts including any nominations by the trustee.
Some of these are “trust documents”, but otherwise it is obvious the pursuit here is to conduct an accounting exercise to venture behind the trust accounts and extensively “drill down”, as accountants say, to all the financial dealings and transactions concerning trust assets in the administration of the trust estate.
This leads me to the interplay between a beneficiaries’ entitlement to documents under the law of trusts ― which is where this dispute started ― and, despite that, a beneficiary’s pursuit of documents under a civil procedure rule such as rule 32.05. When the applicant’s counsel speaks of the limitations to information under the law of trusts as being a misleading distraction, what he means I think is that such laws are pertinent to a freestanding request for documents but not for the pursuit of information under the aegis of discovery of documents in a (prospective) litigious context based on a reason to believe there has been maladministration or breach of trust. If a beneficiary ends up suing for maladministration or mala fides in decision making, then depending on the allegation, it opens up the evidentiary question of what the trustees did, and for that there is the ordinary right of discovery anyway. Counsel for the respondents says, the case is based on “concerns” and “impressions”, all unsubstantiated, which is a feeble basis to attract the discretion in rule 32.05. He submits to grant discovery on the widespread basis being sought here (going back to 16 years) and to subject the ex-directors to something resembling an accounting enquiry into their discretionary decisions in the administration is something is something which the “freestanding” law of trusts would not countenance, and nor should the court either at the threshold or as a matter of discretion.
There is the battleground. What does the freestanding law allow?
A beneficiary’s rights to trust documents
The starting point is to see, as is typical, that the deeds of trust contain clauses that limit a beneficiary’s right to obtain information. For example:
WITHOUT prejudice to any right under the general law of the Trustees to refuse disclosure of any document it is hereby declared that the Trustees shall not be obliged to disclose to any person any of the following documents:
(i)any document disclosing any deliberations of the Trustees (or any of them) as to the manner in which the Trustees should exercise any power or any discretion conferred upon the Trustees by this Deed or disclosing the reasons for any particular exercise of any such power or any such discretion or the material upon which such reasons were or might have been based;
(ii)any other document relating to the exercise or proposed exercise of any power or any discretion conferred on the Trustees by this Deed (not being legal advice obtained by the Trustees at the cost of the trust estate).[21]
[21]See exhibit PG 2.
Nothing turned on those clauses as the application was careful to disclaim any entitlement to documents disclosing a trustee’s deliberations. The basis of the respondents’ resistance was pitched according to Re Londonderry’s Settlement.[22] The English Court of Appeal there endorsed the view that a beneficiary’s equitable interest in the trust estate meant that a beneficiary has a proprietary interest in access to the trust documents. Subsequent cases have viewed that as not meaning literally that a beneficiary has property in the trust documents themselves, but has a right of access to trust documents consonant with the beneficial interest of a beneficiary in the trust property.[23]
[22][1965] Ch 918.
[23]See Breen v Williams (1996) 186 CLR 71, 89; and Rouse v IOOF Australia Trustees Ltd (1999) 73 SASR 484. See also Re Fairbairn (1967) VR 633 at 635.
The first problem is that an object of a discretionary trust, as is the case here, has no proprietary interest in the trust assets unless there is no other discretionary object, and has only standing to compel the proper administration of the trust, that is, to have it carried out according to its terms. The second problem is defining what are “trust documents”. It cannot include everything in the trustee’s hands as such, for that would “cover practically everything that reaches the trustees in their official capacity, from advertisements for pink pills to blackmailing letters from people who think they have a grudge against the trustees”.[24] In Londonderry Salmon LJ acknowledged that “trust documents” had never been comprehensively defined “nor could it be – certainly not by me”. His Lordship went say in a way which is regarded as unavoidably begging the question:[25]
Trust documents do, however, have these characteristics in common: (1) they are documents in the possession of the trustees as trustees; (2) they contain information about the trust which the beneficiaries are entitled to know; (3) the beneficiaries have a proprietary interest in the documents and, accordingly, are entitled to see them.
[24]Londonderry at 935D (per Dankwerts LJ).
[25]At 938D.
The law recognises that a trustee’s task would become intolerable, and relations could easily become strained and abrasive particularly in a family context if at any time there could be demands for “trust documents” to see if the trustee has exercised the discretion in the best possible manner or why something was done in a particular way. As I understand the respondents’ reliance on Londonderry, they look to the determination in that case that whatever might be thought to be a trust document, the overriding principle is that the beneficiary has no right to access documents created by the trustee concerning a trustee’s deliberations on a discretionary matter, or the trustee’s motives and reasons, or documents looking into the mind of the trustee, or that which actuated a trustee in coming to a decision. Underlying that is the notion of confidentiality and the privacy of a trustee’s documents when it comes to exercising discretion particularly amongst competing interests.
There is real uncertainty whether the proprietary basis in Londonderry can be regarded any longer as being the basis for considering the beneficiary’s legal entitlement to receive trust information.[26] It is said to be oversimplified[27] and to have jurisprudential difficulties.[28] But it has its adherents.[29] The decision of the New South Wales Court of Appeal in Hartigan Nominees Pty Ltd v Rydge[30] is the contemporary reference point. In Hartigan, the issue was whether a discretionary beneficiary was entitled to see a ‘Statement of Wishes’ given to the trustees by the settlor. A majority held that the memorandum, which was provided for the trustees’ use in exercising their powers, was provided on a confidential basis and did not have to be disclosed to a beneficiary. In so deciding, the majority followed Londonderry. Mahoney JA said:[31]
In general, a trustee is not obliged to volunteer documents or information to beneficiaries or possible beneficiaries. However, if a beneficiary requests it, a trustee is in general obliged to provide documents and information to the beneficiary, at his cost, in relation to the trust property and to provide an accounting in respect of the administration of it.
…As at present advised, I doubt that a person whose interest lies not in property but in possibility and is in respect of part but not all of the trust property may demand such information.
[26]See the concise and helpful article by Elizabeth Bishop, “Limiting the nature and scope of a beneficiary’s entitlement to receive trust information” (2014) 88 ALJ 416.
[27]See Dura (Australia) Constructions Pty Ltdv SC Land Richmond Pty Ltd [2007] VSC 272, [10] (Dodds- Streeton J).
[28]See Silkman v Shakespeare Haney Securities Ltd [2011] NSWSC 148.
[29]See McDonald v Ellis [2007] NSWSC 1068 (Bryson AJ). See Re Fairbairn [1967] VR 633.
[30](1992) 29 NSWLR 405.
[31]At 431F.
His Honour then went on to consider the limits of that right conformably with Londonderry.[32] In essence the document sought must be the property of the trust, for information may be the property of the trustee and not, in the relevant sense, of the trust. There might also be written communications to a trustee which, though the property of the trust, were confidential, for example, confidential information about a beneficiary as a reason for not exercising a discretionary power. And information need not be disclosed if the result of the disclosure would be to make known the reasons why a discretionary power was exercised in circumstances where the disclosure was not required and was not made by the trustee. Such documents are not characterised as property of the trust but as property of the trustees, having been prepared by the trustee for its own purposes. His Honour said:[33]
…In deciding questions of disclosure, it is important in my opinion to have regard to the essential nature of such discretionary trusts. Such a trust is not a mere commercial document in which the public may have an interest. It is a private transaction, a disposition by the settlor of his own property, ordinarily voluntarily, in the manner which he is entitled to choose. Special cases apart, it is proper that his wishes and his privacy be respected.
In a discretionary trust of this kind, the settlor has placed confidence in his trustee and has on that basis transferred property to him. It has, I think, been the purpose of the law to respect that trust. It depends upon confidence and confidentiality. The settlor seeks to have the trustee resolve, without unnecessary abrasion, the conflicting claims of persons in an area, the family, where disputes are apt to be bruising. In cases of this kind, if a settlor’s wishes cannot be dealt with in confidence, the purpose of the trust may be defeated.
It has been the practice of the Chancery Courts to protect trustees from interference in the administration of such trusts. Thus, there is, it has been said, a general right of a beneficiary to have trusts administered by or under the supervision of the court. But rules have been evolved to ensure that, unless there be cause, there will be no interference with the administration of the trust by the trustee. As a matter of principle, the discretion of the trustee has been respected by the courts.
[32]At 432 ff.
[33]At 436B.
Sheller JA, in the majority in Hartigan, said the enquiry whether or not a beneficiary has as a proprietary interest “is, if not a false, an unhelpful trail.”[34] His Honour saw the determinant in Londonderry as being the preservation of the trustee’s right not to disclose the reasons for exercising discretion or the subjective process of reasoning.
[34]At 444B.
The dissenting judgment of Kirby P in Hartigan has to be considered, for its influence on subsequent development of the law. His Honour held that the principles in Londonderry were unsatisfactory and did not represent local law. His Honour considered that the right to inspect trust documents ought not to be founded upon any equitable proprietary right over those documents, but upon a trustee’s fiduciary duty to keep the beneficiary informed, and to render accounts. In other words, the trustee’s duty to give complete and accurate information about the administration of the trust extends to an entitlement to know what the trust property is and how the trustee has dealt with it.
That view was adopted by the Privy Council in Schmidt v Rosewood Trust Limited[35] which on an appeal from the Isle of Man declined to follow Londonderry, and cast the right to seek disclosure as a matter of discretion integral to the Court’s inherent jurisdiction to intervene in the administration of trusts. Their Lordships said:[36]
…The more principled and correct approach is to regard the right to seek disclosure of trust documents as one aspect of the court’s inherent jurisdiction to supervise, and if necessary, to intervene in, the administration of trusts. The right to seek the court’s intervention does not depend on entitlement to a fixed and transmissible beneficial interest. The object of a discretion (including a mere power) may also be entitled to protection from a court of equity, although the circumstances in which he may seek protection, and the nature of the protection he may expect to obtain, will depend on the court’s discretion: [Authorities omitted]
Their Lordships are therefore in general agreement with the approach adopted in the judgments of Kirby P and Sheller JA in the Court of Appeal in New South Wales in Hartigan Nominees Pty Ltd v Rydge…
[35][2003] 2 AC 709.
[36]At 729D.
The conclusion was:[37]
…a beneficiary’s right to seek disclosure of trust documents, although sometimes not inappropriately described as a proprietary right, is best approached as one aspect of the court’s inherent jurisdiction to supervise, and where appropriate intervening, the administration of trusts. There is therefore in their Lordship’s view no reason to draw any bright dividing line either between transmissible and non-transmissible (that is, discretionary) interests, or between the rights of an object of a discretionary trust and those of the object of a mere power (of a fiduciary character). The differences in this context between trusts and powers are… a good deal less significant than the similarities.
However, the recent cases also confirm…that no beneficiary (and least of all a discretionary object) has any entitlement as of right to disclosure of anything which can plausibly be described as a trust document. Especially when there are issues as to personal or commercial confidentiality, the court may have to balance the competing interests of different beneficiaries, the trustees themselves, and third parties. Disclosure may have to be limited and safeguards may have to be put in place. Evaluation of the claims of a beneficiary (and especially of a discretionary object) may be an important part of the balancing exercise which the court has to perform on the materials placed before it. In many cases the court may have no difficulty in concluding that an applicant with no more than a theoretical possibility of benefit ought not to be granted any relief.
[37]At 734E – 735A.
In McDonald v Ellis[38] Bryson AJ did not regard the views expressed in Schmidt as a binding source of a rule of law to displace Hartigan. Seeing it as better to have a rule rather than leaving it to judicial discretion for the litigious beneficiary his Honour said:[39]
A decision that all access to trust documents should be in the discretion of the Court is a drastic solution to whatever problems might be perceived in supposing a proprietary basis for discretionary interests, and whatever problems may be perceived in delimiting which documents should be treated as trust documents and in protecting from access documents accessed to which involve some conflicting principles.
… In my opinion it is not a better rule because it introduces discretion and promotes resistance and debate in substitution for a rule which is relatively concrete. The tendency would be that only the determined and litigious beneficiary will find out about his own affairs. Where there is a judicial discretion, there is room for litigious debate about the exercise of the discretion; there is no certainty on such elementary a matter on whether or not a beneficial owner is entitled to information about property in which the beneficial owner has an equitable interest. In the previous rule, in my interpretation Equity followed the law in treating as proprietary an equitable entitlement to trust property. Treating the equitable interest as proprietary brings with it an entitlement to information unless there is a conflict with some other principle which Equity must recognise, such as the principle protecting the trustee’s discretionary consideration. Treating the entitlement to information as an aspect of the court’s discretionary exercise of its supervising over trusts is a departure from the relatively concrete concept of equitable interests in trust property which has been adopted for some centuries.
[38][2007] NSWSC 1068.
[39]At 47, 51.
Not all judges in New South Wales take the same view. In Silkman v Shakespeare Haney Securities Ltd,[40] Hammershlag J decided to follow Schmidt saying:
[40][2011] NSWSC 148.
Absent clear appellate guidance, I propose to follow the Schmidt approach. A consideration of the authorities reveals that the Londonderry approach has jurisprudential difficulties which the Schmidt approach does not have, including:
ascribing a workable and principled definition of the term ‘trust documents’;
divining the nature of the beneficiary’s so-called proprietary interest in such documents. In Hartigan Nominees v Rydge at [444] Sheller JA articulated this difficulty by describing this ‘trail as unhelpful if not false’;
that on the Londonderry approach a discretionary beneficiary who has no lesser interest in the due administration of the trust (but who has no proprietary interest in the assets) should, illogically, be denied disclosure;
that authorities which have taken the Londonderry approach have limited the beneficiary’s right to disclosure by reference to the interests of third parties in maintaining confidentiality. It is difficult to reconcile this limitation with the principle for which Londonderry stands; and
reconciling a beneficiary’s entitlement to documents such as a settlor’s statement of intention or a constituent trust deed (which undoubtedly a beneficiary should properly have) with the fact that these instruments are themselves not assets or appurtenant to assets of the trust.
On the Schmidt approach, his Honour saw the Court as intervening “where it is shown that the defendant has fallen short of its duty to make disclosure to the plaintiff, by requiring such disclosure as is needed to remedy the default” and to then “mould any orders to take into account competing interests for and against disclosure”.[41] But what is the ambit of the duty to make disclosure?
[41]At 53.
I have gone to these lengths out of deference to the arguments and legal authorities put to me, but there are limits to which an application of this type requires an exegesis of substantive law and its uncertainties. I think the respondents’ position as fixed on Londonderry is legitimate in resisting a pursuit of deliberations and matters private to the trustees, but it is too broadly based in grappling with the operation of rule 32 in the peculiar situation here. The outcome in Londonderry was right: access to a trustee’s document was refused because it would reveal the reasons or deliberations or confidential information underlying the exercise of the trustee’s discretion or dispositive powers for which not even the Court can look into because the exercise of the trustee’s discretion is not examinable: see Karger v Paul.[42] That extends to material that is so integrated with the trustee’s reasoning process that its disclosure would reveal the reasoning process: see Mandie v Memart Nominees Pty Ltd.[43]But Londonderry and the cases in that field concern a request for information outside any contentious proceedings that concerning the validity of a trustee’s actions or allegations of mala fides. Even in Londonderry, the court said pointedly:[44]
The position is quite different where the beneficiary seeks disclosure of documents from a trustee’s in the air, as in this case, from the position where the beneficiary seeks discovery of documents in an action in which allegations are being made against the bona fides of the trustees. If the documents in question are in the possession or power of the trustees and are relevant to the issues in the action, they must be disclosed whether or not they are trust documents.[45]
[42][1984] VR 161.
[43][2014] VSC 290; aff’d on appeal [2014] VSCA 181.
[44]At 934F.
[45]At 938.
Here the applicant started by seeking information in the air. He was given trust documents in the form of financial statements. Now, he is not seeking information in the air; nor has he brought an action; but he is one step back from bringing an action which he has reason to believe he may have but cannot without further information. And then he has to take a sideways step, as it were, to bring a case against not the defunct trustee but its ex-directors for acts of procuration. If he brings a claim of mala fides presumably on the basis that the discretion to dispose of trust assets was exercised not in good faith and not real and genuine consideration or not in accordance with the purposes for which the discretion was conferred, then it is open for the Court to examine the evidence to decide whether there has been a failure by the trustees to properly exercise their discretion. As part of the process of, and solely for the purpose of, ascertaining whether there has been such a failure, it will be relevant to look at evidence of the enquiries which were made by the trustees, the information they had and the reasons for, and the manner of, their exercise their discretion. That is what the well-known decision in Karger v Paul[46] stands for. To that end discovery in the ordinary way will be opened up.
[46][1984] VR 161.
Thus, I do not think it right for the respondents to characterise the application as itself trouncing the Londonderry principle or, now, as maybe as exceeding the Schmidt discretion to intervene. I think the respondents most forceful appeal to justice, perhaps thematically based on Londonderry, was that after the passage of so much time, and an interregnum in 2010, and the death of Bentley, and the vesting of trusts, and the deregistration of trustees, and in circumstances where it could not be said Peter Guest (as well as his children) had received substantial financial benefits as a beneficiary over his lifetime, he was now looking as an ex-discretionary beneficiary to have accountants go behind the accounts and the trust administration to conduct an extensive forensic investigation into the financial affairs of the trust over a long time and see if a basis could be distilled for making a case of accessorial liability against the directors for breach of trust. And putting aside the forensic (but of itself not adverse) evidence of the difficult relationship with Anne and the contested evidence about her influence over Bentley, he was now acting on no more than a hunch or speculation of wrongdoing.
As I said at the outset, the second and third prerequisites of r 32.05 are not in issue here. The question concerned the first prerequisite whether there was a reason to believe that a right to relief exists. On that prerequisite, amidst the numerous authorities, it is sufficient to recite the principles as stated in Plzen Pty Ltd v P & O Wharf Management Pty Ltd[47] as follows (with my emphasis):
[47][2007] VSC 318 (Habersberger J).
(a) the rule is to be construed benevolently or beneficially;
(b)its primary object is to advance the administration of justice by enabling a prospective plaintiff to make an informed decision on proper material about whether or not to bring an action;
(c)the test for determining whether the application has ‘reasonable cause to believe’ is an objective one;
(d)the test is satisfied if the applicant ‘may have’ the right to obtain relief;
(e)the applicant does not have to show that it has a prima facie case that it has the right to obtain relief;
(f)an application must not be based upon a mere hunch;
(g)‘belief requires more than mere assertion and more than suspicion or conjecture’, the ‘evidence must incline the mind towards the matter or fact in question’;
(h)but the assent of belief is given on more slender evidence than proof and the grounds which can reasonably induce the required inclination of the mind may, depending on the circumstances, leave something to surmise or conjecture;
(i)it is no answer to an application for pre-trial discovery to say that it is in the nature of a ‘fishing’ expedition because that is permitted by the rule if the required conditions are made out;
(j)if there is no reasonable cause to believe that one of the necessary elements of a potential cause of action exists, that would dispose of the application insofar as it is based on that cause of action;
(k)while uncertainty as to only one element of a cause of action might be compatible with the required ‘reasonable cause to believe’, uncertainty as to a number of such elements may be sufficient to undermine the reasonableness of the cause to believe;
(l)control of any excesses could be exercised as a matter of the Court’s discretion in the particular circumstances of each case.
The applicant’s case is predicated on the proposition that all beneficiaries of trusts, be it a fixed trust or a discretionary trust, are entitled to invoke the jurisdiction of the Court to see that the trust has been duly administered. Of course that is true, but the exercise here goes beyond administration. It is looking, plainly enough, to see if a case can be made for procuration of a miscarriage of the duty to act honestly and in good faith, or on genuine considerations and not for ulterior purposes. It was also put as based on a trustee’s duty to keep proper accounts. But the exercise here goes beyond that too. As counsel for Peter Guest put it, the pursuit was to find out what happened to the trust assets and trace his father’s wealth as a matter of accounting. He wants to know what transactions took place. This course had to be taken so as to steer a course to avoid colliding with the principle that absent an action for mala fides, a beneficiary has no right to see documents private to the trustees which may evidence the reasons why the trustees have made their decisions.
This application has its difficulties and its tensions. In my judgment, the objective basis for reason to believe is weak. It is predicated upon casual information and then a supposition that his father obtained $23 million for his share of the family business in 1999. That is disputed by Briglia, a man in an informed position. Secondly, it is predicated upon the reduction of the value of the net assets in the six trusts from 2008 to vesting in 2010 by which time the evidence is that he was given $1 million for superannuation and control of two trusts as part of a measure to reduce his financial dependence on his father. Thirdly it is based on capital transfers and advances before then. The hypothesis ― and that is what it is ― seems to be: as a means to cut Peter out of a share of the family wealth, the directors set about to divest certain trusts of assets by transferring them at undervalue to other trusts. Yet Peter was a discretionary beneficiary with no entitlement to distributions and his father was known to be concerned with providing for Anne and looking to make his son financially independent.
The case may appear to be weak but the benevolence of the rule is not, and I am bound to administer it that way in the judicial exercise of discretion. That can be exercised to curtail the amplitude of the documents sought. I would disallow documents that seek to go behind and vet the accounts. I would allow those documents that, despite the difficulties of definition, appear to me to be trust documents such as financial statements and documents and other documents that that identify trust assets and beneficiaries. The applicant’s proposed orders concern the seven trusts that have been identified in all exchanges hitherto, and as there has been no controversy about identity, then subject to what follows, there is no reason why that part of the order should not be made. The period of time proposed commences from 17 December 1999. I think that goes too far back in time. I would order the commencement date to be 30 June 2004. Anne commenced her directorship in 2004 and that year is said to be about the time that the relationship deteriorated and advisors were changed.
Following the paragraph numbers of the revised schedule A of documents as stated in paragraph 55 of this judgment I would order pre-action discovery of these documents or type of documents:
(a) the balance sheet in paragraph 1;
(b) the profit and loss statements in paragraph 2;
(c) the distribution statements in paragraph 7;
(d) the distribution documents in paragraph 12;
(e) the documents in paragraph 13 and 14;
(f) the documents in paragraphs 16, 17 and 18.
I make this final observation. It is to be kept in mind that pre-action discovery must be distinguished from ordinary discovery in litigation which is an entitlement. Once a case is formulated with allegations that have a tenable basis, and an action is started, then Peter Guest can pursue energetically the ordinary right to discovery of documents that are relevant to the case as alleged. That is an important distinction to help understand the purview of the procedural rule at play here and the limits of its availability.
I would ask the parties to prepare an agreed order which may be submitted to my Associate to be settled and authenticated.
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