Mandie v Memart Nominees Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

No. 2013 of 04203

EDWARD NICHOLAS MANDIE & NICHOLAS ELLIOT MANDIE	Plaintiffs
v
MEMART NOMINEES PTY LTD AS TRUSTEE FOR THE DAVID MANDIE FAMILY TRUST	Defendant

---

JUDGE:	MACAULAY J
WHERE HELD:	Melbourne
DATE OF HEARING:	27 February 2014
DATE OF JUDGMENT:	20 June 2014
CASE MAY BE CITED AS:	Mandie & Anor v Memart Nominees Pty Ltd
MEDIUM NEUTRAL CITATION:	[2014] VSC 290

---

TRUSTS – discretionary family trust – trustee’s duty to provide beneficiaries with accurate information concerning the administration of the trust − application by potential objects of discretion for information – scope of a trustee’s immunity from disclosing reasons for the exercise of an absolute discretion − whether application amounted to request for trustee’s reasons – whether trustee had foregone immunity by volunteering reasons – whether distinction between reasons for exercising discretion and basis for exercise - Re Londonderry’s Settlement [1965] Ch 918 - Karger v Paul [1984] VR 161 - Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405 - Curwen v Vanbreck Pty Ltd (2009) 26 VR 335 – application refused.

---

APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr C Scerri QC with Mr S Freire	Donaldson Whiting & Grindal
For the Defendant	Dr I Hardingham QC with Mr P Herzfeld	Allens

HIS HONOUR:

Introduction and summary

Cousins, Edward and Nicholas Mandie (the plaintiffs), are members of a class of general beneficiaries of a discretionary family trust, the David Mandie Family Trust. As such, Edward and Nicholas are persons whom the trustee may, in its absolute and uncontrolled discretion, appoint to receive income or capital distributions from the trust. Memart Nominees, the trustee (and defendant in this proceeding), has not made any distribution in favour of either plaintiff since at least the mid 1990’s, if ever.

In July 2012, through their solicitors, the plaintiffs requested certain information from the trustee. Not being satisfied with its response they applied to the court on originating motion for the following relief:

An order that the Defendant, by its proper officer, provide the following information, verified by affidavit, in respect of the years ended 30 June 2007, 30 June 2008, 30 June 2009, 30 June 2010, 30 June 2011, 30 June 2012 and 30 June 2013:
(a)for the purposes of deciding whether or not to distribute any income of the David Mandie Family Trust to each Plaintiff:
(i)what information did the defendant have concerning the personal or other circumstances of each plaintiff; and
(ii)from whom did the defendant obtain that information.

It is common ground between the parties that, under the general law, a trustee of a discretionary trust is not obliged to disclose or explain its reasons for exercising a discretion in a particular manner.[1] Nevertheless it is also common ground that a trustee of a discretionary trust is bound to exercise its discretions and powers in good faith, giving real and genuine consideration to the exercise of the discretion, and in accordance with the purposes of the trust.[2]
[1]Re Londonderry’s Settlement [1965] Ch 918 (‘Londonderry’s Settlement’); Karger v Paul [1984] VR 161 (‘Karger’); Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405 (‘Hartigan’).
[2]Karger [1984] VR 161; Curwen v Vanbreck Pty Ltd (2009) 26 VR 335 (‘Curwen’).

Neither plaintiff alleges that the trustee has acted in breach of duty. That is, in this proceeding they do not impugn the trustee’s exercise of discretion in any way. Rather, they argue, the proceeding is no more than one by which they, as beneficiaries, seek to obtain information about the administration of the trust as they contend they are entitled to do.

They deny that, by their application, they purport to require the trustee to disclose or explain its reasons for the exercise of its discretion; instead they say they are merely seeking information as to the basis upon which (as distinct from the reasons why) the trustee acted as it did.[3]
[3]Plaintiffs’ outline of submissions [36], [46].

Alternatively, if by seeking such information they are in fact seeking the trustee’s reasons for the exercise of discretion, they claim that the trustee has already volunteered some of its reasons. Having done so, they argue that the trustee is no longer entitled to claim the protection generally afforded under the law to discretionary trustees from having to disclose their reasoning.

In substance, the trustee denies there is any valid distinction between seeking reasons on the one hand and seeking the ‘basis’ for making a decision on the other. It argues that the true legal position is that the trustee is not bound to disclose its reasons or the information or material upon which its reasons were or might have been based. According to the trustee, the order that the plaintiffs seek falls squarely within that prohibited territory.

Moreover, the trustee argues that, divorced from an action alleging actual impropriety, a beneficiary cannot, as the plaintiffs purport to do here, initiate an investigation into the conduct of a trustee’s exercise of its discretion and powers. Nor can it, in any event, interrogate a trustee in relation to the exercise of such discretion.

Finally, the trustee relies upon the protection of the confidentiality of the kind of information that is sought.

In my view, the plaintiffs are not entitled to the order they seek, generally for the reasons advanced by the trustee. I explain my reasons more fully below.

Background

The plaintiffs’ paternal grandfather was David Mandie. David died on 17 August 2011. He had three children: Ian, Stephen and Evelyn Danos. Edward is the son of Ian and Nicholas is the son of Stephen. Evelyn is their aunt.

David was an extremely wealthy man. At the time of his death that wealth was held in real and personal assets in his own name and in trusts established for his and his wife, Minnie’s, benefit. Most of that wealth had been generated by businesses conducted by entities known collectively as the James Richardson Group.

The plaintiffs allege that Ian and Stephen had worked full time in the James Richardson Group businesses after completing their education. Around 1994, as a result of what the plaintiffs described was a ‘serious rift in the family’, David removed Ian and Stephen from the business and replaced them with their sister, Evelyn.[4]
[4]This account as given by the plaintiffs in their affidavits was clearly hearsay. The defendant did not object to the evidence for the purpose of this application but made it clear it was not admitting the asserted facts generally or for the purpose of any other proceeding, in particular, the testator family maintenance proceeding referred to in [22] below.

Those events led to Ian and Stephen making a claim for an entitlement to part of the assets held by David and his various companies and trusts. They alleged they had been wrongfully excluded from the management of the James Richardson Group businesses and that inadequate provision had been made for them.

Ultimately Ian and Stephen’s claim was settled. Under the terms of the settlement they disclaimed any entitlement in relation to, and agreed not assert any rights as beneficiary of, any trust controlled directly or indirectly by David or Minnie. Neither plaintiff was party to or involved in the settlement of the dispute.

The David Mandie Family Trust is one of the trusts in which David’s assets were held. The directors of the trustee of that trust, Memart Nominees ‑ the defendant in this proceeding ‑ are Evelyn Danos and Milton Lasnitzki (the CEO of the James Richardson Group). Prior to 1994, Ian and Stephen had also been directors of the trustee along with David, Minnie and Evelyn. Following the settlement of the family dispute, Evelyn, David and Minnie (until their deaths) and Mr Lasnitzki (since 2011) have been in control of the trust via their directorships of the trustee.

According to the affidavits filed by the plaintiffs in this proceeding, prior to David’s death they enjoyed a strong relationship with their aunt, Evelyn. They say that they were in regular contact with her as a result of their frequent visits to David who resided with Evelyn up until his death. Each year they would receive birthday cards from Evelyn. But, so they each say, since David’s death in August 2011, their relationship with Evelyn has deteriorated and they are no longer in contact with her.

As I mentioned above, no distribution has ever been made to either plaintiff from the Trust.

Correspondence before the application

It was against this background that correspondence relevant to this application was exchanged between solicitors for the plaintiffs and for the trustee commencing in mid-2012.

On 18 July 2012 the plaintiffs’ solicitors wrote to the trustee requesting ‘information and documents … regarding the affairs of the Trust’. The requested documents and information consisted of a copy of the trust deed, details of distributions made out of the trust fund from 1 January 1996 and copies of the trust’s annual accounts for each financial year from 30 June 1996 until 30 June 2012.

It took until 14 December 2012 for the trustee, through its solicitors, to confirm that the ‘available books and records relating to the trust’ would be ready for inspection.

After the documents were inspected, copies were requested by the plaintiffs. Thereafter a lengthy exchange of correspondence ensued, concerning the terms of confidentiality undertakings which the trustee required but the plaintiffs declined to give. The debate centred upon the question whether a particular accountant retained by the plaintiffs was or would be permitted to look at the copy documents once they were provided. The same accountant was also said to be advising Ian and Stephen who, apparently, had commenced proceedings against the executors of David Mandie’s estate under Part IV of the Administration and Probate Act 1958 (Vic).

After the dispute concerning who could view the documents was resolved, copies were provided to the plaintiffs.

The copy documents included minutes of the directors’ meetings of the trustee in 2006 and 2007, and various financial records for the trust for about six years up to 2011. Having looked at the documents, the plaintiffs’ solicitors wrote to the trustee’s solicitors on 29 April 2013, saying:

In the letter of 29 October 2012 we explained that the principal reasons for seeking access to the documents were to ascertain:
•What matters the Trustee took into account when making its annual decision to distribute Trust income; and more particularly,
•to what extent, if at all, the Trustee considered our clients when deciding how the Trust income should be distributed.

None of the documents produced even hint at the possibility that the Trustee had any regard to our clients when making its distribution decision.

The plaintiffs’ solicitors went on to assert that a reasonable inference arose that the trustee had acted in breach of its duties. But, acknowledging the possibility that the trust documents were deficient and did not fully explain the reasons behind the trustee’s distribution decisions, they invited the trustee to provide its reasons.

On 9 May 2013 the trustee’s solicitor replied to the plaintiffs’ solicitors 29 April letter in these terms:

Your letter asserts that the documents produced by Memart Nominees Pty Ltd (the Trustee) do not indicate that the Trustee has had regard to your clients when making distribution decisions (the first assertion). It is then alleged that there are grounds to remove the Trustee because, as a matter of inference, the Trustee has not informed itself of the situation of each beneficiary and has not given real and genuine consideration to those respective situations (the second assertion). We reject both assertions.

After making further statements about the law and various clauses of the trust deed, emphasising in particular the wide discretion conferred upon the trustee, the solicitors for the trustee then continued:

In the circumstances, we reject the first assertion. Distributions made by the Trustee had been in accordance with the true purpose of the Trust. This is reflected in the financial reports and you may already be aware of this. Indeed, it is clear from the documents provided to you that distributions have not been made to family members, other than Mr David Mandie, during the period in question. It is also wrong to allege that the Trustee has not considered the situation of your clients when making these distributions. Within the constraints of the strained family relationship, the Trustee has made efforts to familiarise itself with the personal circumstances of each beneficiary despite the wide discretion conferred by the Deed. [emphasis added].

In a further letter from their solicitors dated 3 June 2013, the plaintiffs refined the information they sought from the trustee in the following terms:

Our clients therefore seek from the Trustee information which justifies your statement that “the Trustee has made efforts to familiarise itself with the personal circumstances of each beneficiary”. Another reason for seeking this information is to establish that the Trustee exercised its discretion “upon a real and genuine consideration of the matter entrusted to the Trustee’s discretion”.
The particular information we seek from the Trustee is the following:
(1)What inquiries did the Trustee undertake to familiarise itself with the personal circumstances of each beneficiary (including our clients);

(2) Of whom were those inquiries made; and
(3) What information did those inquiries yield?

That letter provoked the following short response on 17 June 2013 from the solicitors for the trustee:

The directors of the trustee of the David Mandie Family Trust reside in Melbourne, as do the beneficiaries of the Trust. As your clients are aware, the directors and beneficiaries have many mutual friends and acquaintances. Through discussions with those friends and acquaintances and informal, social inquiries, the directors have at all times had an awareness of the circumstances of the beneficiaries. In addition, knowledge of those circumstances has been provided through social media, on which most if not all of the beneficiaries have a presence.

As appears below, the plaintiffs place great significance upon the trustee’s response, via their solicitors, contained in the 9 May letter (in particular, the emphasised passage at [27] above) and the 17 June letter. In those passages, so the plaintiffs argue, the trustee has sufficiently embarked upon providing ‘information’ to the plaintiffs, as beneficiaries, such that the court should order the trustee to more fully provide the information as sought by the terms of the application (see [2] above).

Relevant terms of the Trust Deed

There is no dispute that, under the terms of the trust deed, each plaintiff falls within the description of a ‘beneficiary’.

Clause 4(1)(b) of the deed refers specifically to the trustee’s discretion to apply annual income of the trust in the following terms:

The Trustee may … with respect to all or any parts of the net income of the Trust Fund for [an annual accounting period] ‑
…
(b)to (sic) pay, apply or set aside the whole or such part if any of the same to or for the benefit of all or such one or more exclusive of the others of the general beneficiaries … as the Trustee in its absolute discretion shall think fit.

Clause 7(3) of the deed also provides that the trustee may ‘in its absolute discretion’:

… pay or apply to or for the benefit of any beneficiary the whole or any part of the capital or income to which he is either absolutely or in any way contingently entitled … in such manner and subject to such terms and conditions as it in its absolute discretion thinks fit … .

The uncontrolled nature of the trustee’s discretion is reiterated by clause 19 which provides, generally:

Subject always to any express provision to the contrary herein contained every discretion invested in the Trustee shall be absolute and uncontrolled and every power vested in it (including the making of any determination hereunder) shall be exercisable in its absolute and uncontrolled discretion and the Trustee shall have a like discretion in deciding whether or not to exercise any such power … .

Of particular relevance, according to the trustee, are the terms of clause 17 which, relevantly, provide:

Without prejudice to any right under the general law of the trustee to refuse disclosure of any document it is hereby declared that the trustee shall not be bound to disclose to any person any of the following documents that is to say ‑
(a)any document disclosing any deliberations of the trustee (or any of them) as to the manner in which the Trustee should exercise or have exercised any power or any discretion conferred upon the Trustee by this Settlement or disclosing the reasons for any particular exercise of any such power or any such discretion or the material upon which such reasons shall or might have been based … .[emphasis added]

Relevant principles

The plaintiffs put their case on the basis that, as beneficiaries, they have an entitlement to seek information as an incident of their right to have the trust administered in a proper manner. In so doing they relied upon the ‘entitlement’ basis adopted in Schmidt v Rosewood Trust Limited.[5] In Schmidt, the Privy Council departed from the ‘proprietary right’ analysis of the question whether trust documents should be disclosed, which had previously been the orthodox approach.[6] The Council preferred to approach the question ‘as one aspect of the court’s inherent jurisdiction to supervise, and where appropriate intervene in, the administration of trusts’.[7]
[5]Schmidt v Rosewood Trust Limited [2003] 2 AC 709 (‘Schmidt’).
[6]G. Thomas and A. Hudson, The Law of Trusts (Oxford University Press, 2^nd ed, 2010) 382
[7]Schmidt [2003] 2 AC 709, 734 [66].

In that case, Lord Walker identified three areas in which a court may have to form a discretionary judgment when deciding whether it should compel the disclosure of trust information. That is:

…. whether a discretionary object (or some other beneficiary with only a remote or wholly defeasible interest) should be granted relief at all; what classes of documents should be disclosed, either completely or in a redacted form; and what safeguards should be imposed (whether by undertakings to the court, arrangements for professional inspection, or otherwise) to limit the use which may be made of documents or information disclosed under the order of the court.[8]

[8]Ibid 730.

In the present case, there is no real issue raised about the nature of the beneficiaries’ potential interest in the trust property as a criterion for deciding the plaintiffs’ entitlement to information. Rather, the question focuses on the classes of documents or information that should be disclosed in the present circumstances. Some documents have already been disclosed: the trust deed, accounts and records of past trust distributions. The question here is whether the further documents and information sought ‑ namely, information gathered by the trustee about the personal circumstances of the plaintiffs and the identity of persons from whom that information was obtained ‑ are of a nature that should be disclosed.

Numerous cases were addressed in written submissions and in argument touching upon the clash of two principles: first, the beneficiary’s right to inspect trust documents and obtain information (or, more recently, a right to ask the court to supervise the trustee in the proper administration of the trust); and, secondly, the principle that a trustee is not obliged to disclose its reasons for the exercise of an absolute discretion conferred under the trust.

Central to much of the discussion in recent cases has been the English Court of Appeal’s decision in Londonderry’s Settlement.

In that case, a settlement of shares had been made on trust for a class of beneficiaries with discretionary powers of distribution granted to the trustees. The trustees wished to settle up the trust and pay out all the capital. They proposed to declare a distribution of a particular amount to the defendant, Lady Walsh (a daughter of the settlor). Lady Walsh asked for documents from the trustees to examine their reasons and motives for proposing the particular amount. Specifically, she sought the agenda of meetings, minutes of meetings and correspondence between trustees and between trustees and beneficiaries, amongst other things. The trustees refused and sought the advice of the court. The trial judge ordered disclosure of the documents to Lady Walsh whereupon the trustees appealed.

In the result, the Court of Appeal declared (without prejudice to any right of Lady Walsh to discovery in separate proceedings against the trustees) that the trustees were not bound to disclose any of the following documents:

(a)the agenda of the meetings;
(b)correspondence passing between the individuals holding office as trustees or of appointers from time to time under the settlement;
(c)correspondence passing between the trustees or appointers, on the one hand and beneficiaries, on the other; and
(d)minutes of meetings of the trustees and other documents:
…disclosing the deliberations of the trustees as to the manner in which they should exercise the discretionary powers conferred upon them … or disclosing the reasons for any particular exercise of such powers or the material upon which such reasons were or might have been based.[9]

[9]Londonderry’s Settlement [1965] Ch 918, 939-940.

Harman LJ commenced by observing that the case gave rise to a conflict between the two principles identified earlier in these reasons at [39]. His Lordship added a specific ‘rider’ to the principle of the trustee’s immunity from giving reasons for a discretionary exercise, namely ‘that if trustees do give reasons, their soundness can be examined by the court’.[10]
[10]Ibid 928-9.

His Lordship addressed in turn the different categories of documents sought. In relation to minutes of meetings and related agenda, his Lordship held that even if those documents could properly be described as trust documents, they nevertheless were protected from disclosure for the special reason which protects the trustees’ deliberations on a discretionary matter from disclosure.[11] In particular, his Lordship explained that they were

…in the absence of an action impugning the trustees’ good faith, documents which a beneficiary cannot claim the right to inspect. If the defendant is allowed to examine these, she will know at once the very matters which the trustees are not bound to disclose to her, namely, their motives and reasons.[12]

[11]Ibid 933.

[12]Ibid 933.

In relation to correspondence between trustees, or between trustees and beneficiaries, his Lordship considered that such documents were not trust documents in the proper sense at all and were also not able to be disclosed for that reason.[13]
[13]Ibid 933.

Harman LJ’s qualification above, viz ‘in the absence of an action impugning the trustees’ good faith’, drew attention to the fact that the application for disclosure was made by Lady Walsh divorced from any proceeding in which she alleged any particular breach of trust. The practical significance of that fact was explained by his Lordship before he commenced to consider whether disclosure should be made of any of the categories of documents, saying:

…[i]n truth, this kind of question ought to be raised in an action where issues are before the court and consideration of relevance can be given. It is almost impossible satisfactorily to define the obligations of the trustees in the air.[14]

[14]Ibid 931.

Dankwerts LJ emphasised that for the purpose of deciding matters between beneficiaries (i.e. deciding rights to benefit from the trust), trustees are given a confidential role which they cannot properly exercise if, at any given moment, there is likely to be an investigation to see whether they have exercised the discretion in the best possible manner. Also stressing the importance of the procedural context of the application, his Lordship continued:

Of course, if a case is made of lack of bona fides, that is an entirely different matter. In that case I agree it becomes necessary to examine exactly what has happened because that is in an action and not in a theoretical application for directions, as the present case appears to me to be. It appears to me that the documents are confidential and the trustees’ duty would become impossible and the execution of the trust would become impossible if the trustees were bound to disclose to any beneficiary any information or other matters in regard to beneficiaries that they had received.[15]

[15]Ibid 936.

Like Harman LJ, Salmon LJ saw the issue as giving rise to the clash of the two previously mentioned principles. Salmon LJ went on to identify the rationale behind the principle that a trustee is not obliged to disclose reasons for the exercise of a discretion.

In his Lordship’s view, the rationale had several limbs, the first being that the trustee’s reasons are simply immaterial for the very reason that they cannot be challenged except if there is an allegation of mala fide or breach. The second was that it is not good for beneficiaries as a whole for trustees’ reasons to be disclosed, an allusion to the propensity for such disclosure to embitter family feelings and relationships. Thirdly, his Lordship considered that compelling the disclosure of trustees’ reasons for exercising discretions might make the lives of trustees intolerable and would make it difficult to persuade persons to take on the role.[16] These last two factors were considered particularly apposite in relation to private, discretionary family trusts.
[16]Ibid 936-937.

Like the other members of the court, Salmon LJ drew the distinction between a case in which the bona fides of the trustee was impugned by action and a case in which the beneficiary seeks disclosure of documents from trustees ‘in the air’, divorced from any such allegation.[17]
[17]Ibid 937-938.

The principles applied in Londonderry’s Settlement have been adopted and applied in a number of Australian cases, including by intermediate appellate courts, as the following review of cases demonstrates.

The Queensland Full Court considered and applied Londonderry’s Settlement in 1983, in Tierney v King.[18] A ‘participant’, as defined in the relevant trust deed of a superannuation plan for employees of the Fire Brigades Union, sought copies of actuarial reports used by the trustees to exercise their ‘absolute and uncontrolled discretion’ in the management of the plan. The participant, Tierney, did not allege any wrongdoing by the trustees but merely applied to see the reports.
[18][1983] 2 Qd R 580 (‘Tierney’).

Accepting the general rule that a beneficiary has a proprietary interest in and a right to inspect trust documents,[19] and that the particular documents were ‘trust documents’, the Full Court nevertheless continued:

The rule as was pointed out by Salmon LJ in In Re Londonderry’s Settlement [1965] 1 Ch 918 at pp.936-937, must be balanced with another which is to the effect that trustees acting in good faith are not bound to disclose reasons for the exercise by them of a discretionary power or the information (even if committed to writing) which may bear upon or affect those reasons.[20]

So, the court declined to review the trustees’ decision not to provide the actuarial report.

[19]Relying upon O’Rourke v Darbishire [1920] AC 581; Re Fairbairn [1967] VR 633.

[20]Tierney [1983] 2 Qd R 580, 583.

In Karger, in 1984, McGarvie J considered a decision by trustees, in the exercise of their absolute and unfettered discretion, to distribute the capital of a trust. Unlike cases discussed above, Karger involved an attack on the trustees’ exercise of discretion. As such, it was not primarily concerned with the disclosure of reasons for decision but, rather, the circumstances in which a court can examine and review that exercise. In doing so, his Honour referred to and applied Londonderry’s Settlement and identified the elements or components essential for the proper exercise of an absolute discretion and, therefore, the bases upon which the exercise of it might be challenged.

The facts were as follows. Rose Smith left her entire estate to trustees for her husband, Mr Smith, for his lifetime, and thereafter, upon his death, the remainder to a Mrs Karger. The trustees were Mr Smith and a solicitor, Mr Paul. Under the terms of the trust, the trustees had an absolute, unfettered discretion to pay or transfer any part or the whole of the capital to Mr Smith, for his use absolutely, if he requested them to do so. Following such a request by Mr Smith, the two trustees decided to pay the whole of the capital to him. Mr Smith then died leaving his estate to another person under his will. The decision to transfer the capital of the trust to Mr Smith, and the terms of his will, effectively extinguished Mrs Karger’s interest as remainderman.

Mrs Karger sued the surviving trustee, Mr Paul, alleging that the trustees had acted in breach of trust because they did not act honestly and in good faith, and had acted without giving any fair and proper consideration to whether they should pass the estate to Mr Smith as requested.

McGarvie J held that so long as three essential component parts of the exercise of the particular discretion are ‘present’ courts cannot examine and review a trustee’s exercise of that discretion:

Those essential component parts are present if the discretion is exercised by the trustees in good faith, upon real and genuine consideration and in accordance with the purposes for which the discretion was conferred. The exception is that the validity of the trustees’ reasons will be examined and reviewed if the trustees choose to state their reasons for their exercise of discretion.[21]

[21]Karger [1984] VR 161, 164.

The exception stated in the passage was discussed in further detail. McGarvie J drew attention, amongst other things, to Harman LJ’s rider[22] that if trustees do give reasons, their soundness can be considered by the court.[23] In Karger, the plaintiff had argued that the exception applied because Mr Paul had given an account of the trustees’ reasons in evidence. McGarvie J did not accept the argument, saying:

It would defeat the policy which underlies the principle if beneficiaries could, by alleging lack of good faith against the trustees in an action and for practical purposes thus virtually obliging them to disclose in evidence the way they went about exercising the discretion, obtain a right to examination and review of the discretion which they otherwise would not have. The exception to the principle seems to proceed on the basis that if trustees of their own volition disclose their reasons they are treated as waiving their immunity and inviting examination and review of the reasons.[24]

[22]See [43] above

[23]Karger [1984] VR 161, 165.

[24]Ibid 166.

Later, his Honour concluded:

When trustees disclose their reasons, making those reasons examinable, they are examined to see whether they satisfy the standard of being valid reasons. The principle which I apply is that, apart from cases where the trustees disclose their reasons, the exercise of an absolute and unfettered discretion is examinable only as to good faith, real and genuine consideration and absence of ulterior purpose, and not as to the method and manner of its exercise.[25]

[25]Ibid 166.

In the context of there being a specific allegation of breach of trust, his Honour concluded it was appropriate to examine whether the trustees had failed to give a fair and proper consideration to the exercise of discretion as claimed, but was at pains to explain the limits of that exercise:

As part of the process of, and solely for the purpose of, ascertaining whether there has been any such failure, it is relevant to look at evidence of the inquiries which were made by the trustees, the information they had and the reasons for, and manner of, their exercising their discretion. However, it is not open to the Court to look at those things for the independent purpose of impugning the exercise of discretion on the grounds that their inquiries, information or reasons or the manner of exercise of the discretion, fell short of what was appropriate and sufficient. Nor is it open to the Court to look at the factual situation established by the evidence, for the independent purpose of impugning the exercise of the discretion on the grounds that the trustees were wrong in their appreciation of the facts or made an unwise or unjustified exercise of discretion in the circumstances. The issues which are examined by the Court are limited to whether there has been a failure to exercise the discretion in good faith, upon real and genuine consideration and in accordance with the purposes for which the discretion was conferred. In short, the Court examines whether the discretion was exercised but does not examine how it was exercised.[26]

[26]Ibid 164 (emphasis added).

Leaving Karger, the facts with which the New South Wales Court of Appeal was concerned in Hartigan were that Sir Norman Rydge, via a settlor, had established a trust in 1971. The trust, established by the relevant deed, was for the purposes of carrying out the wishes of Sir Norman. The trustees were obliged to take into account those wishes according to the terms of the deed, and as required by the law of trusts. By the 1990s, after Sir Norman had died, the trust was very valuable.

The respondent, a grandson, was a possible beneficiary under the discretionary trust. In response to a letter from the respondent’s sister, the solicitors for the trustees had indicated that no distribution could be made from the trust at that time because ‘there is no provision in Sir Norman’s memorandum which would entitle the trustees to make any payment to you at this time’, disclosing the existence of the memorandum of wishes signed by Sir Norman. The respondent then commenced proceedings seeking a declaration that the beneficiaries of the trust were entitled to inspect the memorandum of wishes. The trial judge allowed inspection. The Court of Appeal, by majority (Sheller JA and Mahoney JA, Kirby P dissenting), allowed the trustees’ appeal and denied the inspection.

Mahoney JA observed that, generally, trustees are obliged to provide documents and information that is trust property, and an accounting in respect of the administration of the trust.[27] But, his Honour said, there were limits to the extent of the right and he proceeded to address those limits.
[27]Hartigan (1992) 29 NSWLR 405, 431.

According to his Honour, in general the right is confined to an entitlement to inspect documents and obtain information which are, relevantly, the property of the trust. Such limitation would exclude documents or information the property of the trustee. Here, his Honour referred by way of example to a letter from a possible beneficiary conveying information as to his or her circumstances, and to notes made for or by a trustee of discussions with other beneficiaries even though they may be made in order to assist the trustee in deciding how to exercise a discretionary power under which the plaintiff beneficiary may have a possible benefit.[28]
[28]Ibid 433.

A further limitation, on the general right of inspection of trust documents, according to Mahoney JA, is the confidential basis upon which certain types of documents and information are given to the trustee. In his Honour’s opinion:

… where a settlor has been given information in confidence in relation to the exercise of discretionary powers of this kind, another beneficiary is not entitled, by the exercise of his right to see and be informed, to see such documents and receive such information.[29]

[29]Ibid 433.

That principle operated, in his Honour’s view, even if the relevant documents or information constituted trust property.

Echoing remarks made in Londonderry’s Settlement, his Honour referred specifically to ‘the context of personal family affairs the disclosure of which would be abrasive or distressing’, adding:

…[w]hat is here in question is a document disclosed in the context of the administration of the trust which has been disclosed on the basis of, or which is of its nature that it requires, non-disclosure to beneficiaries.[30]

[30]Ibid 433-434.

A further basis for protecting disclosure, his Honour considered, was that the disclosure of information would make known the reasons the discretionary powers had been exercised, referring in some detail to Londonderry’s Settlement. His Honour was of the view that Londonderry’s Settlement should be followed by the New South Wales Court of Appeal as being both correct in principle and in accordance with common sense.

In his Honour’s view, the principles of both the entitlement to inspect, and the counterbalancing immunity from disclosure, extended beyond information contained in documents to information of a non-documentary kind:

The right of a beneficiary to disclosure is ordinarily based upon the beneficiary’s proprietary interest in the documents in question: but, by virtue of the fiduciary nature of the obligations of a trustee, it extends, I think, to information of a non-documentary kind. But, even on such an extended basis, it should not extend to that which the trustee has prepared, or which has been prepared, not for the purposes of the beneficiary but for the trustee’s own purposes.[31]

[31]Ibid 435.

Mahony JA explicitly referred the tension between the need to protect privacy, on the one hand, and the logical corollary of a beneficiary’s right to have the trustees fully account for what they are doing, on the other, and which policy should prevail in any conflict. In his Honour’s view:

The law allows trustees to act without detailing their reasons, not to encourage secrecy, but to avoid litigation …
The need to protect privacy has also been recognised. There is no simple accommodation between privacy and publicity. In some cases, this accommodation may produce an inequity which, for lack of reasons, is not remedied. But, on the other hand, it may avoid the abrasion of family disputes and the difficulties of them. I am not satisfied that these rules produce more of the former than of the latter. In my opinion, the law in this regard is beneficial. I do not think that the benefit of it should be eroded.[32]

[32]Ibid 438.

Sheller JA began his analysis by emphasising that the case did not involve a question of discovery rights in a suit for breach, highlighting the fact that the case concerned a free-standing application for information.[33] Providing the discretion was exercised within power, bona fide and upon fair consideration, its exercise was, his Honour said, a matter for the trustee and not for the court.[34]
[33]Ibid 441
[34]Ibid 441.

His Honour considered it ‘sensible’, in the context of a trust and absent bad faith, that the law allow discretionary powers to be exercised without the need for disclosure by trustees of their reasons.[35] In particular, he agreed with Harman LJ in Londonderry’s Settlement when he endorsed the view:

…that it was undesirable to wash family linen in public which would be productive only of family strife and also odium for the trustees and embarrassment in the performance of their duties.[36]

[35]Ibid 442.

[36]Ibid 442.

His Honour then turned his attention to the various criteria that have been advanced for determining whether a particular document ought to be disclosed. His Honour considered the ‘trust document test too circular’, and the ‘proprietary interest’ test as leading to an unhelpful trail.[37] His Honour preferred, as the more relevant determinant, the preservation of the trustees’ right not to disclose the motives and reasons actuating them in coming to their decision, endorsing as accurate a statement appearing in Jacob’s Law of Trusts in Australia[38] that summarised the effect of Londonderry’s Settlement:

… that beneficiaries have no right to see documents private to the trustees which may evidence the reasons why the trustees have made their decisions.[39]

[37]Ibid 444.

[38]JD Heydon and MJ Leeming, Jacob’s Law of Trusts in Australia (LexisNexis Butterworths, 5^th ed, 1986)

[39]Hartigan (1992) 29 NSWLR 405, 444.

Like Mahoney JA, Sheller JA also identified the confidential nature of communications to and between trustees as ‘another basis’ for requiring trustees not to disclose documents in their possession.[40]
[40]Ibid 445.

Finally, but importantly, his Honour thought that material upon which reasons were or might have been based could not generally be withheld, unless that material revealed the reasons themselves or the reasoning process.[41]
[41]Ibid 445; see also John Mowbray QC et al, Lewin on Trusts, (Thomson Sweet & Maxwell, 18^th ed, 2008) 23-39.

In Esso Australia Limited v Australian Petroleum Agents & Distributors Association,[42] Hayne J (when a judge of the Victorian Supreme Court) considered the extent to which a trustee’s exercise of discretion can be examined by a court in the absence of reasons having been given. Of particular interest in the context of the present case is his Honour’s analysis of the position that would exist even if it were possible to identify the material made available to the trustee for consideration when exercising a discretion.
[42][1999] 3 VR 642 (‘Esso’).

In Esso, a petroleum agents’ and distributors’ association had declared itself trustee of a fidelity trust fund under which it may ‘in its discretion from time to time’ make a payment from a fund to an oil company in certain events. The oil company, Esso, sought declarations that it was entitled to be paid an amount after it made claims on the fund. The trustee had rejected its claims without giving any reasons for doing so. Esso complained that the association had not exercised its discretion properly. That is, in the proceeding it alleged that the trustee had failed to take account of relevant material, had taken into account irrelevant material, and had simply followed previous policy and not given fair consideration to the question of whether it should make the payment.

His Honour emphasised the importance of bearing steadily in mind that the trustee had given no reasons for the rejection of the claim so that it was not possible to say what particular matters had persuaded the individual members of the trustee association to reject them.[43]
[43]Ibid 650-651 [37].

Secondly, Hayne J referred with approval to what McGarvie J said in Karger, namely that unless a trustee gives reasons, an unfettered discretion is only examinable as to good faith, genuine and real consideration and absence of ulterior purpose.[44]
[44]Ibid 651 [39].

Absent reasons, his Honour continued, one would not ordinarily be able to say from a conclusion of a trustee alone that it could only be explained by a misconception on the part of the trustee. That is so, because, absent reasons, one could not say that relevant material had been ignored or irrelevant material had been relied upon.

And, his Honour said, even if one could identify material that was available to the trustee, one still could not say whether that material was or was not taken into account.

Further still, if certain material could be identified that might have been relied upon by the trustee was not in fact before the trustee, that circumstance would still not prove miscarriage because the trustee’s discretion, by definition, does not have to adopt or follow one of a limited series of paths of reasoning. Put another away, the bare fact that there was material not placed before the trustee which the trustee might have taken into account is not to say that the trustee should have considered it.[45]
[45]Ibid 652 [40], [41].

In Esso, Hayne J referred succinctly to the alternative scenario, that is where the trustees do volunteer their reasons for exercising their discretion.[46] The next two cases mentioned below concern claims that the trustee had given reasons, so it is convenient to set out the passage cited by his Honour as stating the correct position. Lord Chancellor Truro in Re Beloved Wilkes’ Charity said:

If, however, as stated by Lord Ellenborough in The King v The Archbishop of Canterbury (15 East 117) trustees think fit to state a reason, and the reason is one which does not justify their conclusion, then the Court may say that they have acted by mistake and in error, and that it will correct their decision; but if, without entering into details, they simply state, as in many cases it would be most prudent and judicious for them to do, that they have met and considered and come to a conclusion, the Court has then no means of saying that they have failed in their duty, or to consider the accuracy of their conclusion.[47]

[46]Ibid, 651-652 [39]

[47]Re Beloved Wilkes’ Charity (1851) 3 Mac & G 440, 448; 42 ER 330, 333-4.

In Flegeltaub v Telstra Super Pty Ltd[48] the plaintiff had issued a proceeding against the trustees of the superannuation fund alleging a breach of the trustees’ duty to give real and genuine consideration to her application for a benefit. In its letter to the plaintiff, the trustee simply replied:

The Trustee … has considered your application for a Total and Permanent Invalidity benefit and the determination of the Trustee was that your claim be denied.

[48][1998] VSC 144 (20 November 1998) (‘Flegeltaub’)

Although not passed onto the plaintiff, the minutes of the trustee simply recorded that ‘[t]he directors considered all the papers and unanimously resolved to deny the Total and Permanent Invalidity benefit’. The plaintiff sought leave to interrogate the trustee to elicit its reasons for making the determinations.

Beach J, in refusing the application, followed Karger by holding that the trustee was not bound to disclose to beneficiaries the reasons actuating them in coming to a decision. Furthermore, unless the trustees chose to give reasons for the exercise of a discretion, their exercise of it could not be examined or reviewed by the court so long as they acted in good faith, without ulterior purpose and upon real and genuine consideration of the issue.[49] His Honour held that the evidence established that the trustee had not given the plaintiff any reasons for its decisions.
[49]Ibid [15].

His Honour considered several cases in which the immunity from review of a trustee’s discretion was found to have been waived. But, in his Honour’s opinion, none of the cases justified the proposition that a trustee who chose not to give reasons for the decision could be legally compelled through interrogation to do so.[50]
[50]Ibid [22].

Finally, there is the relatively recent decision of the Victorian Court of Appeal, Curwen. This case largely turned on an application of the evidence rule in Browne v Dunn, yet it also represents appellate court endorsement in Victoria of the principles in both Londonderry’s Settlement and Karger.

In Curwen, two brothers were within a class of beneficiaries of a family discretionary trust. The trustees had an ‘absolute and uncontrolled’ discretion to exclude from the class of beneficiaries any person who would otherwise be a beneficiary under the trust. When the two brothers sought from the trustee copies of various trust documents, the trustee decided to exclude them as trust beneficiaries pursuant to that discretionary power. The brothers sued the trustee alleging it had acted for an improper purpose; ie they alleged that the trustee acted in breach of trust.

The sole director of the trustee company was examined and cross-examined in the proceeding. It was not put to her in cross-examination that she had acted for an improper purpose. The trial judge decided he was unable to infer from the evidence that she had so acted. Two inferences were open: one, that the trustee excluded the beneficiaries to avoid having to hand over the trust documents (ie an improper purpose); and, the other, that the trustee was reminded of the beneficiaries by their request so that the receipt of the request became the occasion to consider whether they should remain beneficiaries (in which case there was no improper purpose).

The Court of Appeal applied Karger as supplying the relevant contextual principles for its reasoning,[51] as follows:

(a)the exercise of a trustee’s discretion is only examinable to see if it is exercised bona fide, upon real consideration and for a proper purpose;
(b)the relevant qualification on that principle is that if a trustee chooses to give reasons, those reasons then become examinable;
(c)even if notice is given to a trustee, as a party to a proceeding, that its discretion is to be impugned, that trustee is still not bound to give reasons for its decision, so it follows that no adverse inference is to be drawn from it not doing so. Put another way, the burden of persuasion is not shifted to the trustee to justify its decision; and
(d)therefore, the judge’s refusal to draw an adverse inference against the trustee in the case at hand – that is, a refusal to adopt the ‘wrong purpose’ inference out of the two open inferences – was not an error.

[51]Curwen (2009) 26 VR 335, 348-349 [24]–[25], [27].

Put succinctly, the court held that ‘[n]o adverse inference of any improper purpose could be drawn from the non-disclosure in her evidence of the trustee’s reasons.’[52]
[52]Ibid 349 [25].

It follows from the decision in Curwen that, generally, a trustee can stand mute and rest upon its entitlement not to give reasons (including information that discloses its reasons) and doing so does not suggest or imply any wrongful concealment or improper exercise of discretion.

Summary of principles

It would be dangerous to suggest that the foregoing review of the authorities reveals any particular series of ‘rules’ concerning the circumstances in which documents or information should be disclosed by trustees to beneficiaries of a trust. But, at least in the context of deciding whether or not documents or information should be divulged when there is a contention that such information or documents may reveal the deliberations, reasons or motives of trustees in arriving at a decision committed to their absolute and uncontrolled discretion, I consider that my approach should be guided by the following principles or considerations:

(a)Subject to various limitations, broadly speaking a trustee has a duty to provide beneficiaries with accurate information concerning the administration of the trust and to permit examination of documents that relate to the trust and its administration.
(b)The source of the trustee’s duty, and the beneficiaries’ correlative right, has in the past been explained by reference to proprietary rights enjoyed by the beneficiaries, or the categorization of documents as either trust or non-trust documents. But, in recent times, it has been viewed as an aspect or manifestation of the court’s jurisdiction to supervise and, where appropriate to intervene in, the administration of trusts.
(c)The duty and the correlative right extends beyond the provision of information in documentary form to information of a non-documentary kind.
(d)Generally, beneficiaries cannot pursue disclosure of the reasons why a trustee exercised an absolute discretion, whether in writing or otherwise, outside of an action brought by the beneficiaries for breach of trust or mala fides when issues of relevance can appropriately be determined.
(e)The protection afforded to trustees against having to disclose their reasons extends to protecting the disclosure of evidence of the trustees’ deliberations and the material upon which the trustees’ reasons were or might have been based – that is, at the least, material that is so integrated with the trustee’s reasoning process that its disclosure may reveal that reasoning process.
(f)A trustee’s immunity from giving reasons for the exercise of a discretion is founded upon (1) the irrelevance of those reasons because, absent a breach of trust, a court will simply not interfere; (2) the essentially confidential nature of the trustee’s task, serving the interests of the beneficiaries as a whole; and (3) the avoidance of making the task of a discretionary trustee intolerable.
(g)An exception to that principle of immunity exists where a trustee has volunteered the reasons for exercising the discretion and thereby waived the immunity.
(h)In any conflict between the application of the two principles, that is, between a beneficiary’s entitlement to inspect trust documents and to obtain information about the administration of the trust, and the trustees’ immunity for giving reasons for the exercise of a discretion, the principle of the trustees’ immunity is generally to prevail.
(i)Even in an action brought against the trustee alleging breach of trust in the exercise of discretion – and assuming the trustee has not waived the immunity - the trustee’s reasons are only examinable to ascertain whether the discretion has been exercised (ie. honestly, for a proper purpose and on fair consideration), not how it was exercised.

Discussion and analysis

I repeat the observation that this is solely an application made by beneficiaries for the provision of information. For the purpose of this application, no allegation has been made of, and no reliance has been placed on, any impropriety or breach on the part of the trustee, even though that suggestion was made in correspondence before the application was issued.

So, if the request for information is properly to be characterised as a request for reasons actuating the trustee’s exercise of discretion, then, on the authorities I have reviewed, absent any allegation of mala fides or breach the application should be refused. It should be refused because, for the various reasons already described, the trustee is not obliged to provide reasons for the exercise of its absolute discretion if there is no allegation of wrongdoing and if it has not already volunteered its reasons.

Conscious of those limitations, the plaintiffs have raised the two principal arguments alluded to earlier:

(a)first, that what they are seeking is not the trustee’s reasons for not making distributions to the plaintiffs over the seven year time-frame, but only ‘information’ anterior to its decision: that is, information available to the trustee as the basis upon which it could make its decision; and
(b)secondly, and in the alternative, if it is concluded that they are seeking the trustee’s reasons, then, in any event, they are entitled to do so. And that is because the trustee has sufficiently embarked upon giving its reasons or explaining its decisions so that it has waived its immunity and has opened itself up for full examination. In other words, the ‘rider’ that Salmon LJ referred to in Londonderry’s Settlement is engaged.

Are the plaintiffs seeking reasons?

The first argument raises for decision the question whether there is a valid distinction, for the purpose of the principle protecting trustee’s deliberations, between reasons, as such, and the materials and information upon which a trustee’s discretionary decision was based.

In this case, the ‘decision’ was the decision not to distribute any part of the income or capital of the trust to the plaintiffs who were potential objects of the trustee's dispositive power. The task of the trustee under clauses 4(1) and 7(3)[53] of the deed was threefold: to consider periodically whether or not to exercise the dispositive power; to consider the range of objects; and to consider the appropriateness of individual appointments.[54] Further, in conformity with Karger principles, the trustee would lawfully exercise its absolute discretion only if it did so honestly, for proper purposes and having given fair consideration to the issue.
[53]See [31] and [32] above.
[54]Re Hay’s Settlement Trusts [1982] 1 WLR 202 at 210 (Sir Robert Megarry V-C)

There was no dispute that, to do so, would require the trustee, at least from time to time, to acquaint itself with the personal and other circumstances of the plaintiffs, along with those of other potential objects of its power of disposition.

That being so, although stressing that they were not alleging any breach of trust for the purpose of this application, the plaintiffs nevertheless argued that the prima face inference to be drawn from the uncontested facts was that the trustee had given no consideration to the appropriateness of an appointment to either plaintiff during the seven year time frame, or at least since 2011.

In support of that inference, they pointed to a combination of circumstances. First, (so they contended, and it was not disputed) there was no evidence in the trust documents inspected so far of any consideration having being given to the plaintiffs. Secondly, the previous personal contact between the plaintiffs and Evelyn had ceased since 2011. Thirdly, the trustee had refused, when asked, to identify any other specific source or body of information upon which it might properly have relied to make its decision on proper grounds – that is, other than its reference to discussions with (unidentified) mutual friends and acquaintances, informal social inquiries, and knowledge gained from unspecified social media.

In those circumstances, the plaintiffs argued, they are entitled, as beneficiaries of the trust and as an aspect of their right to have the trustee administer the trust in a proper manner, to know the ‘information’ available to the trustee upon which it exercised its discretion.

I am not convinced that the inference that the plaintiffs say arises, does in fact arise from the facts that they rely upon. No distribution has ever been made to them, before or after 2011, so the absence of contact with their aunt since that time does not appear to have striking relevance. Further, if the trustee is not obliged to state its reasons or disclose the material on which its decision was based, nothing can be inferred from its failure to do so. And thirdly, the lack of any evidence in the particular documents so far inspected of the trustee having considered the plaintiffs might be entirely neutral. It was not said, for instance, that the documents were of a kind that ought to reveal the trustee’s consideration of particular beneficiaries as potential objects, or of dispositions generally. The bare description of the documents did not suggest that they would or should contain such evidence if it existed.

But more importantly, in my view the distinction that the plaintiffs seek to draw is illusory: that is, the distinction between the subject matter of the reasoning protection afforded to trustees, on the one hand, and ‘mere information’ as to the basis upon which the trustee acted (or that was available to the trustee for the purpose of exercising its discretion) on the other. It is clear that the protection afforded by the principle in Londonderry’s Settlement, adopted by the Australian authorities, extends to the very kind of information that the plaintiffs seek. That is made clear by the terms of the order made by the English Court of Appeal which expressly excluded from disclosure documents disclosing ‘the material upon which such reasons were or might have been based’.[55]
[55]See [42] above.

Not only are such documents immune from disclosure under the terms of the Londonderry’s Settlement principle, but in this case they are also protected from disclosure by the express terms of the trust deed in identical language.[56] It is notable that the scope of the protection extends to material upon which the reasons ‘might’ have been based.
[56]Clause 17, extracted at [35] above.

The logic of why that should be so is reasonably clear. If there is good justification to protect the private, discretionary reasoning of trustees, then that justification rationally extends to the protection of the source information which the trustees use in close connection with the process of their reasoning. There is no bright dividing line between the reasoning process and the information processed in that reasoning. Common experience teaches us that the material considered when making a decision often - although not always, and not conclusively[57] - provides a solid clue to the reasoning itself.
[57]As Hayne J pointed out in Esso [1999] 3 VR 642, knowing the material placed before the trustee is by no means conclusive of the reasons for decision.

But, perhaps more significantly, the important confidentiality foundation of the immunity principle would be defeated if the nature and sources of personal information about beneficiaries from third parties (including, for example, other family members in a private family trust context) were revealed.

Subject to what follows, because of the close connection between deliberating over the exercise of the discretion, and the material used in that process, the absolute and unfettered nature of trustee’s discretion means that the material used is likely to be as irrelevant to the court and to the beneficiaries as the reasoning itself. The qualification relates to a situation, unlike the present, in which the plaintiffs have commenced an action alleging, on a proper basis, some want of good faith or some other impugning feature of the exercise of discretion, such as pursuit of an improper purpose or failure to give fair consideration to the issue. In such a situation, the authorities reveal, the reasoning and the material used in that consideration may then be examined, but even then only for the limited purpose of ascertaining whether the discretion was lawfully exercised and not how it was exercised.

In the present case, that ‘close connection’ between the information that the plaintiffs ask for, and the deliberative process of the trustee, is exposed by the very terms of the order that the plaintiffs seek. They seek information possessed by the trustee ‘for the purpose of deciding whether or not to distribute any income of the David Mandie Family Trust to each Plaintiff’.

So, it would seem that the information they seek falls within the kind of information protected from disclosure by the trustee’s immunity from having to give reasons.

But, at this point the plaintiffs complain, in substance: ‘If (as we do) we have the right to ask the court to supervise the proper administration of the trust which, in relation to the exercise of a discretion, is to ensure it is exercised for a proper purpose and upon real and genuine consideration, how can we exercise our rights unless we know the basis on which the trustee purported to exercise its discretion?’

In aid of their argument that they must, logically, have a right to obtain information of that kind if their right to enforce the proper administration of the trust is to have any meaning, the plaintiffs placed emphasis on a sentence appearing in Scott and Ascher on Trusts[58]. In that text, the learned authors began with the proposition that a trustee is under a duty to give to beneficiaries, upon request, complete and accurate information about the administration of the trust. Such information includes, the authors said, what the trust property is, how the trustee has dealt with it and, ordinarily, the opportunity to examine the governing instrument, the trust property, the trustee’s accounts and ‘any other documents that relate to the trust and its administration’.
[58]Scott, Fratcher and Ascher, Scott and Ascher on Trusts (Wolters Klewer, 5^th ed, 2006).

After referring to some potential limitations the trust instrument may itself impose, the authors then continued:

On the other hand, subject to very few exceptions, all beneficiaries are entitled to such information reasonably necessary to enforce their rights to obtain relief for breach.[59]

[59]Ibid § 17.5. The passage containing the general statement of duty, without the sentence in question, was cited with approval by Gummow J in Re Simmersall;Blackwell v Bray (1992) 35 FCR 584, 587-8, and by Kirby P (dissenting) in Hartigan, 422-3.

Drawing upon the principle inherent in that statement, the plaintiffs argue that their right to obtain relief for a breach of trust by action would be undermined if they were denied access to information which may alert them to a breach of trust.[60] The trustee denied the existence of any such principle.
[60]Plaintiffs’ outline of submissions, [43].

It is difficult to find support for the proposition that, to secure their rights to obtain relief for a possible breach of trust when no such breach has been alleged, beneficiaries are entitled to information that could contain or reveal the trustee’s reasoning for the exercise of a discretion. And it is doubtful, in my view, that is what the authors were saying. Indeed, the relevant passage falls in a section that specifically references Londonderry’s Settlement in footnotes.

In any event, a review of several other texts on the subject[61] does not produce strong (if any) support for this broad proposition relied upon by the plaintiffs. One arguable source of support is to be found in Underhill and Hayton, where the authors write,

As Millet LJ also stated,[62] ‘Every beneficiary is entitled to see the trust accounts, whether his interest is in possession or not’ so that he has the means to discover whether there has been a breach of trust which can be remedied. [63]

It is doubtful, in my view, that the statement of Millet LJ, when read in context, linked the entitlement to see trust accounts with the purpose attributed by the author of the text. In my respectful opinion, the writer may well have confused a consequence that follows from an entitlement with the purpose of the entitlement. Be that as it may, the passage was limited to a category of documents that has long since been recognised as being a ‘trust document’ and not one that would likely contain a trustee’s discretionary reasoning or confidentially obtained information.

[61]JD Heydon and MJ Leeming, Jacobs’s Law of Trusts in Australia (LexisNexis Butterworths, 5^thed, 2006); D Hayton (editor), Underhill and Hayton: Law Relating to Trusts and Trustees (Lexis Nexis Butterworths, 17^th ed) (‘Underhill and Hayton’); G. Thomas and A. Hudson, The Law of Trusts (Oxford University Press, 2^nd ed, 2010).

[62]Armitage v Nurse [1998] Ch 241, 261.

[63]Underhill and Hayton, above n 61, [60.3].

Moreover, in Hartigan, Mahoney JA, directly on point, expressed a view contrary to the plaintiffs’ proposition. In his Honour’s opinion a ‘beneficiary may support a case by discovery but may not use the process to ascertain whether a case exists’.[64] Further, as is made clear in the authorities I have canvassed above, even in a proceeding which features a specific allegation of breach of trust, a trustee is not obliged to state its reasons. And, as the Court of Appeal in Curwen confirmed, a trustee may stand mute and no adverse inference may be drawn against it for doing so. The evidentiary burden for bringing forth evidence of a miscarriage of the discretionary power remains firmly on the beneficiary. If that is so, it is difficult to see how the proposition that the plaintiffs rely upon can be correct.
[64]Hartigan (1992) 29 NSWLR 405, 437.

In effect, the plaintiffs’ argument seeks to subjugate the trustee’s entitlement to the protection of its reasoning and the material upon which it was or may have been based, to their own rights to ‘discover’ a possible breach of trust. In my view, that approach runs in direct contradiction to what the authorities say is the prevailing right (above, [94(g)]).

For these reasons, I reject the plaintiffs’ argument that their request does not constitute a request for the kind of information that is protected by the principle in Londonderry’s Settlement or by clause 17 of the trust deed.

Has the trustee disclosed its reasons or the material on which it was or might have been based?

It is clear that the trustee did not volunteer its actual reasons for not making distributions of capital or income to the plaintiffs.

However, the plaintiffs argued that if, contrary to their first submission, the court accepted that seeking the information as described was tantamount to seeking the trustee’s reasons, then the trustee has already volunteered sufficient information to date to constitute a waiver of the usual protection.

The extent of the disclosure required to trigger the loss of protection does not appear to have been explored deeply in either the cases or the texts. Nor have the principles behind or the rationale for the exception been clearly articulated. From the passage cited from Re Beloved Wilkes Charity, (above, [83]) it seems to be assumed that the disclosure itself would reveal enough of the reasons for it to be evident whether the decision lacked justification. Sometimes courts have used the term ‘waiver’, suggesting a voluntary foregoing of the protection or perhaps an element of unconscientiousness by asserting a right while also engaging in its breach.

In summary, the following occurred before the plaintiffs issued their application:

·The plaintiffs asserted there may be grounds for removing the trustee because, as a matter of inference, it had not informed itself of each plaintiff’s situation or given real and genuine consideration to them as potential objects of the discretion;
·The trustee denied the assertion, but went on to say, positively, that it had made efforts to familiarise itself with the personal circumstances of each beneficiary;
·The beneficiaries followed up, asking the trustee to justify its statement about making efforts, adding that they wanted satisfaction that the trustee had exercised its discretion on ‘real and genuine consideration’;
·The trustee finally responded (see [29] above) by referring to their mutual friends and acquaintances, its informal social inquiries, and the beneficiaries’ social media presence.

If material that forms or might form the basis of the trustee’s exercise of a discretion enjoys the same protection as the reasons for its exercise, it might reasonably be argued that, under the same exception applicable to reasons, voluntary disclosure of some of the material basis for a decision opens up the examination of the whole of the material. I will assume for the purpose of this application that such a principle should operate by analogy or extension of reasoning.

But, for that analogy or extension to have a basis in logic or principle, the voluntary disclosure of the material basis for decision would need to yield something of value either about the reasoning process, or the quality of the consideration (real and genuine, or otherwise) given to the issue. My view is derived in part from the contemplated effect that such partial revelation may have, as envisaged by Lord Chancellor Truro in Re Beloved Wilkes Charity. That is, that the revelation yields information about the justification for the decision.

Further, unless the disclosure does yield something of that kind, it seems to me it can hardly amount to an actual disclosure of a real or potential material basis for decision in any practical sense.

In this particular case, I am not satisfied that the trustee’s statement that it made efforts to familiarise itself with the plaintiffs’ personal circumstances was a sufficient disclosure to engage the exception (assuming it applied). Rather, the statement amounted to little more than repeating in generic terms the duty applicable to the trustee.

When it subsequently identified some potential sources of information, albeit vague and general, particular to the plaintiffs, it travelled closer to the line that demarked the boundary between immunity and loss of immunity. But, even then, by not revealing anything about the nature of the information gained, the disclosure had no capacity to yield any conclusions or rational inferences about the reasoning process, or the quality of the consideration given to the issue. It did not illuminate the basis upon which the trustee exercised its discretion, still less the reasons for its exercise.

Presumably, that is why the beneficiaries remain dissatisfied. Indeed, in support of their primary argument, they contended that what the trustee has revealed to date simply does not inform them about the bases of the decisions to decline to make a distribution.

For these reasons, I find that the trustee has not volunteered information that would allow the court to examine its reasons or the potential basis for the exercise of its absolute and unfettered discretion.

Conclusion

In summary, the plaintiffs have not established a proper basis for the court to make the order they seek. It follows that their application must be dismissed.