Hatch v HARLEKIN Pty Ltd

[2008] WASC 167

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   HATCH -v- HARLEKIN PTY LTD [2008] WASC 167

CORAM:   MASTER SANDERSON

HEARD:   30 JULY 2008

DELIVERED          :   14 AUGUST 2008

FILE NO/S:   CIV 2355 of 2007

BETWEEN:   MARK DAVID HATCH, TANYA LEANNE HATCH and MICHAEL MURDOCH HATCH in their capacities as beneficiaries of the Murdoch Family Trust

Plaintiffs

AND

HARLEKIN PTY LTD (ACN 119 339 847) as trustee of the Murdoch Family Trust
Defendant

Catchwords:

Trusts and trustees - Liability of discretionary beneficiaries to pay for legal advice taken by trustee when trustee requested to provide documents relating to the trust - General principles to be applied - Discretionary considerations affecting general rule

Legislation:

Nil

Result:

Beneficiaries ordered to pay costs of taking advice

Category:    A

Representation:

Counsel:

Plaintiffs:     Ms P H Ford

Defendant:     Mr M C Hotchkin

Solicitors:

Plaintiffs:     Maxim Litigation Consultants

Defendant:     Hotchkin Hanly

Case(s) referred to in judgment(s):

Australian Securities and Investments Commission v Carey (No 6) [2006] FCA 814

Chaine‑Nickson v Bank of Ireland [1996] IR 393

Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405

Southern Wine Corporation Pty Ltd (in liq) v Frankland River Olive Co Ltd (2005) 31 WAR 162

1. MASTER SANDERSON:  On 21 December 2007, the plaintiffs, in their capacities as beneficiaries of the Murdoch Family Trust (the Trust), commenced these proceedings seeking orders compelling the trustee of the Trust to make certain documents relating to the assets of the Trust available to them for inspection.  The terms of the Trust deed confer upon the defendant complete discretion whether to distribute any part of the income or capital forming part of the Trust at any time to the plaintiffs.  It was common ground that as discretionary beneficiaries in a non‑exhaustive trust, the plaintiffs have no proprietary interest.  They have nothing more than a hope that they might be considered by the trustee for a distribution:  see Australian Securities and Investments Commission v Carey (No 6) [2006] FCA 814.

2. By letter dated 4 June 2008, the defendant's solicitors advised that their client required the plaintiffs to pay the defendant trustee's legal costs said to relate to or arise from the plaintiffs' request to inspect Trust documents before Trust documents would be provided.  In the months preceding 4 June 2008, the plaintiffs had agreed to pay similar legal costs upon requests made by the defendant, such payments being made on a 'without prejudice as to rights' basis.  It seems that the plaintiffs considered the costs of disputing the request were likely to be greater than those sought.  It was not suggested that having paid legal costs in the past, the plaintiffs were in some way bound to pay the costs now being sought.

3. The plaintiffs do not dispute that they are required to pay the reasonable photocopying and collation costs arising from or connected with the requests by them to access and inspect Trust documents.  The plaintiffs contend that the defendant trustee's costs of obtaining legal advice should be distinguished from other expenses arising from the plaintiffs' request to inspect Trust documents.  The plaintiffs further contend that the defendant trustee's costs of obtaining and receiving legal advice ought properly be met or satisfied from the assets and proceeds of the Trust, rather than being paid by the plaintiffs in their capacities as beneficiaries of the Trust.

4. It was also not disputed that the court could make an order as to who would be responsible for these costs.  The matter was not argued on the basis that there was some power in the case management provisions or in O 66 which would allow an order for costs to be made.  Rather, the application was argued as a matter of principle.  That is to say, both parties approached the matter as if no proceedings had been issued, a request for documents had been made and the trustee had taken legal advice.  In such circumstances, who was liable to pay the costs of obtaining legal advice?

5. Remarkably enough, this question appears not to have received direct consideration by the courts.  As was submitted by the defendant, it is by no means clear precisely what is the scope of the right of beneficiaries in the position of the plaintiffs to inspect any particular document relating to the Trust.  In Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405, the court discusses what sort of documents may properly be defined as 'trust documents' and which are to be made available for inspection. In Hartigan Nominees, the court did say that the right of any discretionary beneficiary to be provided with documents or information is conditioned by it being done 'at his own expense' or 'at his cost'.  In doing so, the court approved of the decision in Chaine‑Nickson v Bank of Ireland [1996] IR 393. Neither Hartigan Nominees nor Chaine‑Nixon provide the answer to the question raised by this case.

6. It is not in dispute that the trustee has the right, if it was called upon to pay legal expenses, to recover those expenses from the trust estate. Section 71 of the Trustees Act 1962 (WA) provides that trustees can reimburse themselves or pay or discharge from trust property any expenses reasonably incurred in connection with the execution of the trust. Furthermore, cl 10(c) and (h) of the Trust deed in this case provides an express right for the defendant trustee to obtain and pay for professional assistance from the proceeds of the Trust. The case law has consistently supported that proposition - see, for instance, Southern Wine Corporation Pty Ltd (in liq) v Frankland River Olive Co Ltd (2005) 31 WAR 162.

7. On behalf of the plaintiffs it was submitted that the trustee should reimburse itself from the assets of the Trust and not call upon the plaintiffs to pay any legal costs.  It was submitted that if the taking of legal advice was necessary, it was an incident of the defendant's role as a trustee.  As it was then acting for and on behalf of the Trust and protecting the interests of the beneficiaries of that Trust, it was for the Trust to meet the expenses.

8. On behalf of the defendant it was submitted that on policy grounds the Trust should not be forced to bear the cost of obtaining legal advice in a case such as this.  It was said that if the Trust did not have to bear the cost, then the taking of advice was more likely and that in turn reduced the prospect of litigation.  In my view, such a submission is speculative and cannot determine the outcome of this application.

9. It was further submitted on behalf of the defendant that to pay the legal fees out of the assets of the Trust was unfair to other beneficiaries when those seeking the Trust documents were discretionary beneficiaries who may or may not receive a distribution.  Effectively, it was said that those who did receive a distribution were subsidising the enquiries of those who did not.  In my view, that submission is of some substance.  It raises the question of where the costs should actually fall - on those making a request for documents or on those who would otherwise benefit from a distribution not reduced by the costs associated with meeting the request.

10. On behalf of the defendant it was also pointed out that in Hartigan Nominees, the Court of Appeal was clear that the costs of providing the documents should be borne by those making the request.  Counsel submitted that it was logically consistent that if the costs associated with actually providing the documents was to be borne by those making the request, the costs associated with deciding what documents should be provided should also be borne by those making the request.  I accept that there is a logical consistency in that argument.

11. Counsel for the defendant went on to submit that although it might be possible to set out a general rule, that rule would not necessarily apply in each case.  For instance, in this case counsel submitted that a number of factors should be taken into account in determining whether or not the plaintiffs should pay the cost of legal advice.  The five factors to which counsel referred were as follows:

    (a)whether the scope of the request was sufficiently certain to be clear as to precisely what documents were sought;

    (b)whether such a request was so patently clear that legal advice as to the nature of the trustee's obligation to respond to the request was not reasonably required;

    (c)whether the request was merely 'fishing', or founded upon a genuine and justified suspicion that the trustee had breached its duties to the discretionary beneficiary making the request (or indeed, to any other discretionary beneficiary);

    (d)whether the discretionary beneficiary articulated its concern to the trustee at any time, such that the trustee was put on notice that if a breach of trust was established, it might not reasonably be reimbursed for legal costs incurred in respect of seeking advice; and

    (e)the circumstances in which the requests were made - for example, when the trustee was a corporation and under the Rules of the Supreme Court as a corporate defendant must be represented.

12. In my view, to be logically consistent a trustee who takes advice consequent upon a request for trust documents, should be entitled to reimbursement for those legal costs from the party who makes the request.  I see no reason why the costs of copying and collating the documents should be reimbursed by the party making the request, but not the costs of taking advice as to what documents ought be provided.  That might be seen as a general rule.  Of course the circumstances of each case may determine whether or not that general rule ought apply.  For instance, if the matter was entirely straightforward, the request simple and the whole trust structure uncomplicated, then it is difficult to see why legal advice might be necessary and reimbursement might not be ordered.  But it would be for the party making the request to show that the taking of the advice was, in all the circumstances, unreasonable and reimbursement ought not be made.

13. In this case, based upon the evidence, I am satisfied that the taking of advice was reasonable.  In fact, the plaintiffs did not argue otherwise.  Their argument was based on a matter of principle.  But a consideration of the evidence which was filed in relation to this matter makes it clear that this is not a simple trust and deciding what documents ought be provided to the plaintiffs was not a simple matter.  Accordingly, I would see no reason to interfere with what I would regard as a general rule.

14. The order then should be that the provision of the documents requested by the plaintiffs should be conditional upon them paying the reasonable legal costs incurred by the defendant.  I will hear the parties as to the precise form of orders and as to costs.