McDonald v Ellis

[2007] NSWSC 1068

Reported Decision: 72 NSWLR 605

New South Wales

Supreme Court

CITATION:	McDONALD v ELLIS [2007] NSWSC 1068 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	05/09/2007
JUDGMENT DATE :	27 September 2007
JURISDICTION:	EQUITY
JUDGMENT OF:	Bryson AJ at 1
DECISION:	(1) Direct pursuant to UCPR10.14 that the Summons be taken to have been served on the first defendant on 11 July 2006 being the date of the second defendant’s appearance; (2) Order pursuant to UCPR 7.10 that the second defendant be appointed to represent the persons other than the plaintiff interested in the trusts of the will of the late Harold Wilfred Wills Baker; (3) Order that the second defendant forthwith provide to the plaintiff accounts for the years ended 30 June 1998 to 30 June 2005 of all moneys received and disbursed by him and by the first and second defendants or on behalf of him or them in respect of the assets of the trust established by Will of Harold Wilfred Wills Baker ; (4) Liberty to apply with respect to the production of trust documents and with respect to the claims in the Summons; (5) Order that the second defendant pay the plaintiff’s costs of the proceedings.
CATCHWORDS:	TRUSTS and TRUSTEES - accounts - entitlement of beneficiaries to accounts and to see trust documents - authority of Schmidt v Rosewood Trust [2003] 2 AC 709 doubted. Trustee resisted beneficiary's claim for accounts and information, asserting confidentiality of income to life tenant - order for accounts.
CASES CITED:	Avanes v Marshall [2007] NSWSC 191 Cook v Cook (1986) 162 CLR 376 Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405 Havyn Pty Ltd v Webster [2005] NSWCA 182 In re Arbitration between Parry and Hopkin [1900] 1 Ch 160 In re Armstrong [1899] SALR 155 In re Dartnall, Sawyer v Goddard [1895] 1 Ch 474 In re Londonderry’s Settlement, Peat v Walsh [1965] 1 Ch 918 In re Tillott, Lee v Wilson [1892] 1 Ch 86 Lehmann v Haskard (SCNSW Young J 29 August 1996 unreported) O’Rourke v Darbishire [1920] AC 581 Randall v Lubrano (SCNSW Holland J 31 October 1975 unreported) Roberts v Roberts (1915) 16 SR NSW 6 Schmidt v Rosewood Trust Ltd [2003] 2 AC 709 Spellson v George (1987) 11 NSWLR 300 Walker v Symonds (1818) 3 Swanston 1, 36 ER 751 Watson v Little (1921) 38 WN NSW 143 Wilkie v Equity Trustees Executors and Agency Co. Ltd [1909] VLR 277
PARTIES:	Narelle Marie McDonald - Plaintiff Roxane Marie Ellis - 1st Defendant John Baker Ellis - 2nd Defendant
FILE NUMBER(S):	SC 1191/2006
COUNSEL:	R. Winfield - Plaintiff N/A - 1st Defendant S.A. Sirtes - 2nd Defendant
SOLICITORS:	Northside Law - Plaintiff N/A - 1st Defendant Teece Hodgson & Ward - 2nd Defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BRYSON AJ

27 September 2007

1191/06 Narelle Marie McDONALD v Roxane Marie ELLIS and John Baker ELLIS

JUDGMENT

1 BRYSON AJ: These proceedings relate to the administration of the trusts of the Will of the late Harold Wilfred Wills Baker who died on 16 December 1977. On 22 May 1978 this Court granted Probate of his last will dated 10 February 1970 to his executrices. The plaintiff is one of the granddaughters of the testator and the Will gave her a quarter share of the interest in remainder in a block of eight flats known as “Tamahine”, 21 Baden Street Coogee, expectant on earlier successive life interests given to the testator’s widow Mrs Marie Baker (who died on 9 November 1997) and his daughter Mrs Roxane Marie Ellis, the plaintiff’s mother, who is still in receipt of benefits under the Will. The express words of the trust confer no right on Mrs Baker and in succession Mrs Ellis other than the right to be paid the net annual income, but the effect of these dispositions in my opinion is to confer on them successive equitable life estates. The Will appointed the testator’s widow and daughter to be executrices and trustees. Mrs Ellis is still a trustee, and she is the first defendant. After Mrs Baker died Mrs Ellis appointed her son Mr John Baker Ellis to be a new trustee by a deed which was registered and took effect on 21 August 1998. Mr Ellis is still a trustee, and he is the second defendant. The block of flats is to pass to the plaintiff and her brother and sister when Mrs Ellis’ life ends. The litigation has been highly combative as between the plaintiff and Mr Ellis.

2 Executorial duties were completed long ago. The testator had other assets but his Will gave them to his widow and his daughter. Only the block of flats remained when Mr Ellis became a trustee.

3 Mrs Margaret Clouting is a daughter of Mrs Ellis and a sister of the plaintiff and of Mr Ellis. Her interests are involved in this litigation but she is not a party. On 7 December 2000, when Mrs Ellis still had capacity to do so, she appointed Mr Ellis and Mrs Clouting to be her attorneys under power; the deed appointing them was registered on 15 July 2005. Mr Ellis and Mrs Clouting have managed Mrs Ellis’ affairs, under this power of attorney, for some years. A deed of appointment of Mrs Clouting as an additional trustee has been prepared, but Mr Ellis has not yet signed it. Such deed would take effect only upon execution and registration, which have not yet happened.

4 Mrs Ellis was diagnosed as suffering Alzheimer’s Disease about 2003. She now has advanced Alzheimer’s Disease, her memory is significantly impaired and she is unable to live alone or support herself. Since about November 2004 she has been a resident in an aged persons hostel. Mrs Ellis has never filed an appearance. The summons was left for her at her nursing home, but this had no real effect as she did not have sufficient understanding to give instructions to lawyers and her attorneys did not do so; no tutor has been appointed. She has an interest in the litigation in two ways, as one of the trustees of the testator’s estate and also as the life tenant presently entitled to income. I see Mr Ellis’ not having decided to instruct lawyers and conduct the litigation on behalf of Mrs Ellis as an aspect of the combative nature of the litigation, but not as indicating any lack of protection of Mrs Ellis’ interest. He could do this under his power of attorney, but he has not chosen to do so. As sometimes happens in litigation about family property among closely related persons, there are signs that the conduct of the litigation has been influenced by conflict at a much deeper level than the issues which are before the Court for decision. There have been unseemly procedural manoeuvres but these should not in my view create difficulties for proceeding to decision. Because of the way in which Mr Ellis has conducted the litigation, and the strong positions he has taken and resistance he has offered, with legal representation, to the plaintiff’s claims, I am of the view that Mrs Ellis’ position and interests have been adequately protected and that it is appropriate to dispense with service of the summons on her while leaving her as a party and bound by the decision. Mr Ellis is in a position actually to maintain the interests of the estate and of all other than the plaintiff interested in it, and he has resisted the plaintiff’s claim with vigour. In the circumstances it is just to treat him as representing all other than the plaintiff who are interested in the estate, and to make appropriate orders giving effect to this view.

5 It is very unfortunate that Mrs Ellis has continued to be a trustee and to be exposed to being a party to estate litigation, for some years after she became unable to fulfil her responsibilities. It was imprudent of Mr Ellis to continue as in effect a sole trustee, with a co-trustee in name only, though he had statutory power to appoint an additional trustee. This is not a responsibility which should be borne by one person alone; the Will appointed two trustees. In the situation of family conflict Mr Ellis left himself exposed to criticism and adverse inferences by acting on his own, and the difficulty in involving Mrs Ellis in the litigation (in which she was a necessary party) resulted from his inactivity.

6 The Will was not skilfully prepared. It appointed the executrices and trustees. It gave the testator’s shares in three corporations to Mrs Ellis and then went on:

“… I GIVE AND DEVISE AND BEQUEATH to my said Trustees the residue of my property real and personal upon the trusts and subject to the declarations and powers following that is to say upon trust to sell, call in and convert into money such part or parts which shall not consist of money with power for such period as my Trustees shall consider expedient to postpone the sale, calling in or conversion of any part or parts thereof and during the period of such postponement to manage the same and as regards my block of flats known as “Tamahine” 21 Baden Street, Coogee upon trust to pay the net annual income therefrom to my said wife MARIE KATHRYN BAKER during her life and immediately after the death of my said wife to pay the net annual income to my said daughter ROXANNE MARIE ELLIS during her life and immediately after the death of my said daughter for my grandchildren absolutely in the following shares:
a) One half share thereof to my grandson JOHN BAKER McDONALD also known as JOHN BAKER ELLIS .
b) One quarter share to my granddaughter MARGARET BEDFORD of Belmore, and
c) One quarter share to my granddaughter NARELLE MARIE McDONALD also known as NARELLE MARIE ELLIS
I GIVE DEVISE AND BEQUEATH all the rest and residue of my estate both real and personal of whatsoever kind and wheresoever situate to my said wife MARIE KATHRYN BAKER absolutely.

7 Several aspects of these provisions appear rather strange. There are two residuary gifts, being the gift to the trustees and the gift of residue to Mrs Baker absolutely in the last words of the Will. The gift of the block of flats is made in the middle of these residuary gifts, so that read completely literally the Will appears to include the block of flats in the trust to convert all the residue into money with power to postpone the sale and to manage the property during the period of postponement. The provisions dealing specifically with the block of flats create a series of interests in the block of flats altogether different to the interest created by the final residuary gift to the testator’s widow. There are specific dispositions of the block of flats, as of the shares in several corporations, so the block of flats cannot have been part of the residue dealt with at two different places.

8 Although on a literal reading the trust for conversion into money could be read as applying to the block of flats, when the Will is taken as a whole I am of opinion that there is no trust for conversion of the block of flats and that the Will means that the trustees are to retain the block of flats during the lifetimes of Mrs Baker and Mrs Ellis and then transfer the block of flats itself (and not the proceeds of its conversion) in shares to the grandchildren. The trust relating to the block of flats is inconsistent with the trust for conversion. Converting the block of flats into money would serve no purpose and would be inconsistent with the scheme of disposition made specifically for the block of flats. The trustees were impliedly given continuing responsibilities relating to the block of flats, implied from the trust to pay the net annual income to Mrs Baker and Mrs Ellis successively. Overall the provisions of the Will can only work harmoniously if the direction for conversion into money with power of postponement relates only to the residue which was given to Mrs Baker. It was out of that residue, and not out of the block of flats of which there was a specific gift, that funeral and testamentary expenses and debts were payable. The provisions relating to the block of flats come later than the provision relating to conversion, and in the resolution of inconsistent provisions in a will this is a minor but not insignificant element favouring primacy for the later dispositions. While the language is not completely clear, I am of opinion that the better reading of the Will and the better view of the testator's intention is that the provisions relating to the block of flats are not affected by the provisions relating to the property which was to be converted into money.

9 The continuing powers and responsibilities of the trustees under the Will with respect to the block of flats are not based on the express power to manage property while conversion into money is postponed, however by implication the trustees have management powers and responsibilities for the block of flats. The implication arises from the continuing nature of the trust dispositions dealing specifically with the block of flats, which would take more than two lifetimes to work out and could be expected to continue for many years (as they have). The trust to pay the net annual income to the persons named could not be carried out without exercising management responsibilities so as to produce income, or without attending to outgoings and liabilities so as to produce net annual income; necessarily this would involve decisions about what liabilities and charges should be set against gross income to produce net annual income.

10 During argument I expressed the idea that the trust to pay the net annual income may mean that the trustees were not authorised to retain any reserves for long-term capital expenditure which should not be accommodated within the ordinary recurring expenditures appropriately dealt with out of the income of each year. This is not a final view. It tends against this view that the reference to the net annual income shows that some charges are to be set against the gross income, and it is open to consideration whether those charges are limited to actual expenditures and outgoings; it is often a responsibility of trustees to hold a fair balance between life tenants and remaindermen, and this may involve creating reserves or borrowing money so as to maintain the capital value of the trust property and the interests of the remaindermen as well as of the life tenant.

11 Retaining funds for use over a longer period and not just in the current year is an ordinary aspect of the responsibilities of trustees where there are both life tenants and remaindermen, and is an ordinary aspect of the conduct of business necessarily involved in owning a block of eight flats, letting them out and collecting the rent. The Will does not give the trustees power to borrow money or mortgage the property, which they could only do under some statutory power or by obtaining authority from the Court, or with the authority of all beneficiaries.

12 The trust is not a bare trust in which trustees are authorised or required simply to hand the block of flats over to the life tenant for the time being for the life tenant to manage as she thinks fit. What the express terms of the Will require the trustees to do for the life tenant is to pay her the net annual income, and there is a clear inference that the trustees are to do all necessary things to realise the income, and they are to make any necessary decisions which bear on ascertaining the net annual income.

13 It is in my view fairly arguable that the trustees should keep the building in an appropriate state of repair including undertaking renovations as well as effecting routinely occurring repairs, and that they are either authorised or required to act prudently to provide for renovations, to set aside money out of rental income before ascertaining the net annual income, and to carry out the renovations when required.

14 On the other hand it is also fairly arguable that what the terms of the Will require is that the trustees should deal only with affairs in the course of each year, collect the rent, pay the expenses which present themselves during that period, and pay the net annual income to the life tenant. Even if this is the correct view, the remaindermen still have an interest in knowing what is being done in the management of the property. In their own interests they may decide to provide money for renovations themselves.

15 I was referred to a number of judicial decisions which bear on the position of trustees in holding a fair balance between life tenants whose interest is in the best available present income and remaindermen whose interest is in maintaining the value of the income-producing property. Decisions on such questions are largely affected by the express or implied terms of the trust in question. I am not called on when deciding claim 1 in the summons to decide whether it is the duty of the trustees to make provision, by reserves out of income or in some other way, for repairs or renovations which are not part of the ordinary flow of expenses incurred in each year; still less am I called on to decide whether Mr Ellis or the trustees have incurred any liability to the plaintiff. Counsel referred extensively to case law on the position of trustees in holding the balance between life tenants and remaindermen. Although no conclusion can be based on them I will set out observations on these submissions.

16 Counsel for Mr Ellis referred to Lehmann v Haskard (SCNSW Young J 29 August 1996 unreported). That case related to the construction of a will which the testator prepared and wrote out himself. He appointed trustees, and he gave a life interest in a house to his divorced wife in a provision which said "The property must be maintained and fully insured". The will did not give the trustees powers of management or a duty to manage the property and Young J held, "… [t]here is sufficient to throw the burden of effecting maintenance, that is, remedying defects, onto the life tenant." His Honour considered the duties and powers of trustees who are not given active powers of management. In this connection he referred to case law including Wilkie v Equity Trustees Executors and Agency Co. Ltd [1909] VLR 277. In Wilkie the Full Court of the Supreme Court of Victoria made a clear statement of the powers of trustees who have powers of management of income-earning property and should adjust the entitlements of life tenants and remaindermen on a fair basis when they exercise their powers of management to effect repairs. Even if there is a bare trust with no powers, the Full Court contemplated (at 280) that corpus may be applied to effect repairs where the estate is in jeopardy, "… ie, that a case of salvage has arisen, in that expenditure is necessary to keep the property in existence for the remaindermen." The Full Court considered and ruled on a number of questions about specific items of repair, and also made general statements about the manner in which repairs should be charged (at 280-282). The Full Court distinguished between recurring ordinary repairs, structural repairs essentially appertaining to the remainderman's interest and structural repairs which would benefit both. Provisions set aside in advance for future repairs, did not receive the Full Court's consideration, and sinking funds to pay off borrowing after repairs have been carried out were considered briefly and not approved of (at 282). The judgment leaves a great deal to the discretion of trustees where costs should be borne in due proportion by income and corpus.

17 It is significant that Wilkie's case related to what may and should be done by trustees who have powers of management. A life tenant of a legal estate, or of an equitable estate where there are bare trustees without active duties to perform is under no liability to repair the property; the life tenant may repair the property or put up with disrepair if he chooses. (Actively causing waste involves a different principle.) Counsel referred to In re Arbitration between Parry and Hopkin [1900] 1 Ch 160 which vividly illustrates the immunity from liability of a tenant for life of the legal estate. I see no room for a contention that the life tenant has a duty to maintain, and debate could relate only to acts or omission of the trustee. In Lehmann v Haskard the life tenant had a responsibility higher than this because she was bound by a provision of the will which said "The property must be maintained and fully insured".

18 Wilkie was followed and applied in New South Wales in Roberts v Roberts (1915) 16 SR NSW 6 (A.H. Simpson CJ in Eq). In that case the terms of the will created difficulty in deciding whether the trustees had active duties to perform. The will was a difficult one and clearly gave powers of management to the trustees during the lifetime of the widow; but she had died and the dispute related to one of a number of trusts which took effect after her lifetime; the will directed trustees after the deceased and his wife "to receive the rents and profits and to pay the same to his son H.F. Roberts during his life with remainder to his children …" (at 7). A.H. Simpson CJ in Eq decided that this gave the trustees active duties to perform and applied the law laid down in Wilkie.

19 The kind of adjustment which the Court in Wilkie said was left to discretion of trustees was made by the Court in Watson v Little (1921) 38 WN NSW 143.

20 Counsel's submissions on the effect of Wilkie claimed the benefit of passages relating to a bare trust with no powers of management; but in my opinion this is not such a case. The conclusion counsel sought to draw was to the effect that the plaintiff’s rights cannot be affected by the state of repair or dilapidation of the property. In my opinion this conclusion is incorrect and is not available on the facts. The trustees have an implied power of management which includes maintaining the property, it is conceivable that some need for repair or renovation may exist which may have some implication for the plaintiff's rights, and she is entitled to obtain whatever information the trustees have. Whether or not she has any ground of complaint about the way the property has been managed and repairs have been carried out or left unattended to is not part of my consideration, and cannot be considered unless some manner of complaint or question to be decided is first formulated in a clear way.

21 The plaintiff's counsel referred me to Havyn Pty Ltd v Webster [2005] NSWCA 182 where it was decided to the effect that the sale of a building containing six flats which was let out to earn income through management agents in a businesslike way was an event in trade and commerce for the purpose of fair trading legislation. I find little assistance in this decision.

22 I was also referred to In re Armstrong [1899] SALR 155. In my opinion the problem addressed in that case is remote from any matter now relevant. A capital loss incurred, and the life tenants were not required to make any contributions to relieve the burden of that capital loss on the remaindermen. Presumably the capital loss reduced the corpus available to yield income to the life tenants. The grounds of the decision are obscure, particularly the grounds given by Boucaut J.

23 The plaintiff herself made adverse observations in evidence about the state of maintenance and repair of the building, and illustrated this by some photographs which show aspects of the building where maintenance work appears to be necessary. Her evidence does not establish that overall the building is in need of renovations, or show whether or not the shortcomings which her photographs appear to illustrate can or should be dealt with in the ordinary course of routine maintenance or on the other hand that there is a need for extensive works or renovations of a capital nature. Mr Ellis's evidence shows that with the managing agents he has given consideration to repair or renovation projects, particularly for the south-facing windows, but that no decision has been made. Without a capital fund there is little he could do; borrowing for capital works could happen only with the authority of all four persons who have interests in the property, or with authority obtained from the Court. The powers conferred on trustees by the will do not extend so far.

24 In correspondence extending over some years the plaintiff has not been able to obtain accounts or any substantial information about the trust’s affairs but has been refused them. The first claim in the summons as amended is:

(1) An Order that the Defendants forthwith provide to the Plaintiff accounts for the years ended 30 June 1998 to 30 June 2005 of all moneys received and disbursed by on his or his or their behalf in respect of the property comprised in respect of the trust established by Will of Harold Wilfred Wills Baker (Deceased);

25 There are a number of other claims, including claim 2 for a reference to take the estate accounts and enquire into a number of matters relating to dealings with estate assets, claim 3 for payment of any balance found to be due and claims for consequential and procedural orders. However at the hearing before me the plaintiff’s counsel pressed only for order 1 on the basis that the plaintiff is entitled to see the accounts and have information, so as to know whether there is any further matter on which to press for remedies. This was obviously an appropriate position to take.

26 Mr Ellis’ evidence shows clearly that he has not yet kept estate accounts and has not prepared any other documents, such as income tax returns, which may show estate affairs. The only documents which exist now and can be produced are copies of the monthly statements prepared by Taylors First National Real Estate, Randwick, the managing agents. These are Exhibit A. These usually take the form of showing the rents collected, the expenses occurred such as for repairs, rates and commission, leading to a balance which is deposited in Mrs Ellis’ bank account. There is no estate bank account. The managing agents’ statements are in form addressed to Mrs Ellis, although they were at some times posted to Mr Ellis and at other times to Mrs Clouting, and Mr Ellis has received copies of them by email. Mr Ellis did not produce these, either before or at the hearing; they were produced to the Court on subpoena by the managing agents, who said they had records only from September 2000, and were tendered by the plaintiff; the tender was objected to on grounds which included a claim for their confidentiality in the interests of Mrs Ellis. I was not prepared to treat the claim of confidentiality as a ground for rejecting the tender, because the statements were plainly relevant.

27 Mr Ellis’ evidence shows that there are no other documents which should be regarded as estate accounts; there are no annual accounts showing how net annual income is derived; there is no statement of receipts and expenditure. No money has been set aside in the nature of a sinking fund or reserve for repairs, maintenance or renovations; these are dealt with, insofar as they are dealt with, by payments out of the rental income each month. No funds are set aside for future needs, and, as aforementioned, there is no estate bank account.

28 The administration of the trust is the responsibility of Mrs Ellis as a trustee. If records of hers show how the net annual income is calculated or derived, she is obliged in her character as trustee to make those records available to beneficiaries. Mrs Ellis participated in trust affairs in two capacities, as a trustee and also as a beneficiary. It could be said that when income is paid to her, it does not pass out of the hands of the trustees; she is a trustee and (although it is unauthorised that one trustee and not both should hold trust funds) the funds in her hands remain within the Court's control. The possibility is clear that Mrs Ellis, or attorneys acting on her behalf under power, may have documents relating to the trust property and its management. Mr Ellis referred in evidence to tax returns on behalf of Mrs Ellis which show the income, which raises the possibility that there may be lists of repair expenditures and depreciation schedules in those tax returns. As she is one of the trustees, such documents are within the range of documents to inspection of which the plaintiff is entitled.

29 It is the duty of trustees to keep accounts and be in a position to produce them, and the defendants and particularly Mr Ellis have not done this. The need to prepare estate accounts on a proper basis is not something arising out of the plaintiff’s claim, nor is it something to be undertaken only to satisfy her; preparing accounts is an ordinary duty of trustees to which the trustees and particularly Mr Ellis should have attended in the past. In a relatively small and uncomplicated trust where all interested are closely related and there is no conflict, informality might cause no concern and the trouble and expense of preparing accounts might be thought of as unwarranted. In the present case, where the plaintiff has in effect been claiming a right to see accounts for years and her claim has been disputed, it has been rash of Mr Ellis not to prepare and retain estate accounts. At one point I thought that it may still be possible to avoid the trouble and expense of preparing estate accounts if the plaintiff should regard the information in the managing agents’ statements as sufficient to answer her enquiries and concerns; I sought during argument to promote some such arrangement but I had no success as Mr Ellis’ counsel maintained the position that these documents were confidential and the plaintiff should not see them.

30 The principal basis on which the plaintiff’s claim was resisted was that the way in which estate affairs are conducted and the net annual income is derived are not matters in which the plaintiff as a remainderman has any interest. In the development of this argument it was contended to the effect that the plaintiff has no interest in the trust under which the trustees now pay net annual income to Mrs Ellis; that the trust for the remaindermen including the plaintiff is a different trust. This is not a correct view of the dispositions in the Will; when dealing with the block of flats the Will creates one trust of the block of flats with successive interests, and the remaindermen including the plaintiff now have present interests in the block of flats, vested in interest although not in possession. The remaindermen have at the present time an economic interest in the state of repair of the block of flats. Whether it is in or out of repair, whether some need for renovation at a future time is coming into being and whether there are any reserves or provisions, are factors affecting the money value of rights which the remaindermen now own.

31 There is no discretionary trust. The interests of the plaintiff and of other beneficiaries do not depend on any discretion of the trustees, or of anybody else. This sets to one side, as unimportant for disposition of this case, case law and principles relating to the protection of the discretionary decisions of trustees from disclosure. Decisions of trustees exercising choices in the performance of management duties, such as a decisions whether or not to carry out some repair or other, or whether or not to make a provision for a class of repairs in the future, are not the discretions to which that body of case law relates.

32 Until recently judicial authority established in a clear way that a beneficiary with a vested interest in trust property, even though that interest was not yet vested in possession, had a right to information about the estate property, including a right to see estate accounts and the right to inspect the property. This apparently clear position was disturbed by observations in the judgment of the Privy Council delivered by Lord Walker of Gestingthorpe in Schmidt v Rosewood Trust Ltd [2003] 2 AC 709 at 734-735.

33 The Judicial Committee’s concluded view is indicated at two passages, the first at 729:

51 Their Lordships consider that 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 … (and their Lordships referred to authority).

34 At 734-735 their Lordships said:

66 Their Lordships have already indicated their view that 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 intervene in, the administration of trusts. There is therefore in their Lordships' 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 (as Lord Wilberforce demonstrated In re Baden [1971] AC 424, 448-449 a good deal less significant than the similarities. The tide of Commonwealth authority, although not entirely uniform, appears to be flowing in that direction.

67 However the recent cases also confirm (as had been stated as long ago as in re Cowin 33 Ch D 179 in 1886 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.

35 When considering the case law it is important to bear in mind something I have already alluded to, that the plaintiff in the present case has a vested interest in the trust property and is not in the position of the object of a discretionary trust who may or may not, according to some future decision or contingency, come to have an interest. This is a basal consideration because the claim of a person with a vested interest is related to property rights and is a claim to information about the person’s own property. This is no less so because the title of the property is equitable. A claim by the object of a discretionary trust has a less clear and compelling basis. If their Lordships’ conclusions were followed, it would be necessary to depart from the state of opinion which I regard as clearly established in New South Wales and to do so for reasons which do not touch on the case of a beneficiary with a vested interest making a claim for documents the characterisation of which as trust documents cannot be doubted.

36 The clarity of the position existing prior to Schmidt v Rosewood Trust Ltd is borne out by an analysis of earlier authority. The first case to which counsel referred me was Walker v Symonds (1818) 3 Swanston 1, 36 ER 751. This complex case related to liability of trustees for default by a co-trustee; the facts included a release given by the beneficiary without adequate information. In the course of argument Lord Eldon LC said (Swanston 58, ER 772):

It is the duty of trustees to afford to their cestui que trust accurate information of the disposition of the trust-fund; all the information of which they are, or ought to be, in possession: a trustee may involve himself in serious difficulty, by want of the information which it was his duty to obtain.

37 In In re Tillott, Lee v Wilson [1892] 1 Ch 86 Chitty J said at 88: “The general rule, then, is what I have stated, that the trustee must give information to his cestui que trust as to the investment of the trust estate.” His Lordship made orders under which the trustee was required to give the beneficiary authority for the bank in which the trust fund was deposited to tell the beneficiary whether the trust fund was encumbered. In that case the beneficiary held a vested interest in a share of the trust estate contingently on the death of his mother; his interest was not discretionary.

38 In In re Dartnall, Sawyer v Goddard [1895] 1 Ch 474 the English Court of Appeal directed trustees to give a beneficiary a list of investments of the testator's estate. The beneficiary was entitled to share of a fund expectant on the death of a tenant for life. Most judicial attention was given to costs questions. In the course of decision Lord Halsbury said (at 478): “In the first instance the application made on behalf of the Plaintiff for particulars of the trust estate and the investment thereof was, in my opinion, a just and proper one, and ought to have been granted. I see no reason why the trustees should not have granted it.” Lindley LJ said at 479: “… in strict right the Plaintiff was entitled to the further information which she asked for.”

39 O’Rourke v Darbishire [1920] AC 581 relates to discovery, but two Law Lords made obiter dicta expressing in general terms what by then was clearly understood to be the right of beneficiaries with respect to trust documents. These dicta, cited in In re Londonderry’s Settlement, Peat v Walsh [1965] 1 Ch 918 at 932 by Harman LJ, appear to contemplate a beneficiary with a vested interest. Lord Wrenbury, in O’Rourke v Darbishire, spoke at 626-7 of the right of access to documents as a property right and said, ”The beneficiary is entitled to see all the trust documents because they are trust documents and because he is a beneficiary. They are in this sense his own. Action or no action, he is entitled to access to them. This has nothing to do with discovery. The right to discovery is a right to see someone else's documents. The proprietary right is a right to access to documents which are your own.”

40 The entitlement of a beneficiary to see trust documents was considered in much greater detail by the Court of Appeal in In re Londonderry’s Settlement. The Court of Appeal variously considered the effect of the beneficiary’s entitlement’s being discretionary; what documents are trust documents for this purpose; and the influence both of confidentiality and of the exemption of trustees from disclosure of their consideration of discretions. (The conflict of principles was stated by Harman LJ at 928-99.) Harman LJ also referred (at 931) to the difficulty of defining the obligations of trustees "in the air" and not in relation to a particular document which the Court has seen. His Lordship pointed out (at 933) the shortcomings of general observations such as those in O'Rourke v Darbishire. He treated (again at 933) a right to disclosure of trust documents as the ordinary rule and the principle which protects trustees’ discretionary deliberations from disclosure as overriding the ordinary rule, stating that, “In my opinion such documents are not trust documents in the proper sense at all.” Danckwerts LJ and Salmon LJ reached the same conclusion for reasons separately stated. At 938 Salmon LJ stated common characteristics of trust documents, without a comprehensive definition.

41 It should I think be said of In re Londonderry’s Settlement that the Court of Appeal gave protection to the trustees’ considerations of the exercise of a discretion to appoint interest in the trust on the basis of acknowledgement that consideration started with the beneficiary having a right to disclosure. The fact that the beneficiary's entitlement depended on a favourable exercise of discretion did not influence this right.

42 In Randall v Lubrano (2009) 72 NSWLR 621, Holland J made a clear and emphatic statement of a beneficiary's right to know what the trust property is and how it has been and is being administered by the trustee. In that case the interest of the beneficiaries was discretionary, and all objects of the discretionary trust joined in seeking a remedy. I know from my having been in practice at the time that the judgment of Holland J. created a wide impression and dispelled resistance by trustees which it was not then unusual to encounter, although in retrospect it is difficult to see what its basis can have been; I see no encouragement for that view in In re Londonderry’s Settlement. It is surprising that Randall v Lubrano was not reported at the time.

43 In Spellson v George (1987) 11 NSWLR 300 Powell J at 315F-316C stated his Honour’s view of the law, and of the basis in principle of the law:

At the risk of being regarded as overly simplistic, it is as well to start with the fundamental proposition that one of the essential elements of a private trust, be it a discretionary trust or some other form of trust, is that the trustee is subject to a personal obligation to hold, and to deal with, the trust property for the benefit of some identified, or identifiable, person or group of persons: see, eg, Jacobs , op cit pars 108-111 at 8-9. It is, so it seems to me, a necessary corollary of the existence of that obligation that the trustee is liable to account to the person, or group of persons for whose benefit he holds the trust property, (see, eg Manning v Federal Commissioner of Taxation (1928) 40 CLR 506 at 509 per Knox CJ) and, that being so, the trustee is obliged not only to keep proper accounts and allow a cestui que trust to inspect them, but he must also, on demand, give a cestui que trust information and explanations as to the investment of, and dealings with, the trust property: see, eg, re Tillott ; Ford and Lee, Principles of the Law of Trusts (1983) at 404 et seq; Jacobs , op cit pars 1713 et seq; at 391 et seq; Pettit, Equity and the Law of Trusts , 3rd ed (1974) at 330 et seq.

This being the essential nature of the position of a trustee, and the liability to account being an essential ingredient in it, it seems to me that it is inescapable that the cestuis que trust, or any one of the cestuis que trust, have, or has, a correlative right to approach the Court for its assistance in enforcing the personal obligation of the trustee, and, in particular, in enforcing the trustee's obligation to account.

44 His Honour went on to state, with reasons and references to authority, his view that the same right is available to a person whose status is only that of a potential object of the exercise of a discretionary power.

45 Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405 related to the beneficiary’s claim to see a memorandum of wishes provided by the instigator (not the settlor) of a discretionary trust for the use of trustees in exercising their powers. This case exposed the difficulties of identifying what are referred to as “trust documents”. The beneficiary's interest was, as the object of a discretionary trust, potentially but not yet entitled if there should be a favourable exercise of the trustees' discretion. The solicitor for the trustees had given the explanation that no distribution could be made because "… there is no provision in Sir Norman's memorandum which would entitle the trustees to make any payment to you at this time" (at 408E). The facts were unlike those in In re Londonderry’s Settlement in that there had been reference to the memorandum in an explanation given on behalf of the trustees. For reasons extensively stated, Kirby P (who dissented) did not regard In re Londonderry’s Settlement as a decision which should be followed; the majority (Mahoney and Sheller JJA) did not take this view, although their reasons went far beyond a simple application of In re Londonderry’s Settlement. The difficulty in the appeal and the division of opinion related to the application of the right of a beneficiary, including a discretionary beneficiary, to obtain information and inspect trust documents to the memorandum and to the trustees’ discretionary decisions. Mahoney JA did not unqualifiedly endorse the extension of the right to all persons who are only possible beneficiaries under a discretionary trust or are one of a large number of possible beneficiaries (431E-432F), and discussed the difficulties of the limits of trust documents in this context (432F-433B). Mahoney JA’s judgment contains a wide general and (I would respectfully say) orthodox survey of the law in this field; Sheller JA also made a wide survey. It should I think be said that the majority judgments do not depart from In re Londonderry's Settlement. Those judgments illustrate a number of difficulties which do not bear on the present case.

46 In my opinion judges at first instance in New South Wales should treat the majority judgments in Hartigan Nominees as authoritative. While not all matters susceptible of doubt are settled, the starting point, at which the beneficiary is entitled to see trust documents and have information about trust property, and that entitlement has a proprietary basis, is not open to question. The facts in the present case do not raise even the potential difficulties which might be thought to exist where the entitlement of the beneficiary is contingent or subject to a discretionary decision, or involve a decision of trustees which might raise a conflicting principle.

47 The subject under decision in Schmidt v Rosewood Trust Ltd was the appellant’s claim for fuller disclosure of trust accounts and information about trust assets in which the appellant claimed discretionary interests or expectations in right of himself and of his deceased father. Under "Disclosure to discretionary beneficiaries: the recent cases” the Judicial Committee made a wide survey of case law, including New South Wales case law and (at 729 [52]) stated its general agreement with the approach adopted in the judgments of Kirby P and Shelley JA in Hartigan Nominees. The judgment of Kirby P, to which their Lordships referred at some length [52], was of course a dissenting decision and reached its conclusion on the basis of the beneficiary's right of inspection without examining or indeed referring to judicial decisions; the conclusion based itself instead on agreement with a view expressed by Professor H.A.J. Ford in ”Principles of the Laws Of Trust, 2nd ed (1990) which included this sentence (at 425): "The equation of the right to inspect trust documents with the beneficiary's equitable propriety of rights gives rise to unnecessary and undesirable consequences." The consequences referred to included doubts cast on the rights of beneficiaries who cannot claim to have an equitable proprietary interest in trust assets, such as the beneficiaries of discretionary trusts. This was, I must respectfully say, a slight basis indeed for discarding an established right of beneficiaries with vested interests to inspection of documents of such primary importance as the accounts of the trustees. 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 access to which involves some conflicting principle. Their Lordships alluded, twice but briefly, to the reasons given by Sheller JA which addressed difficulties relating to discretionary interests, not vested interests.

48 The views expressed in Schmidt v Rosewood Trust Ltd by the Privy Council on appeal from the Isle of Man, while they should be considered with respect, are not possibly a binding or authoritative source for a rule of law which would render the entitlement of the plaintiff in these proceedings to access the documents, to information, in short to accounts, a discretionary one: see Cook v Cook (1986) 162 CLR 376 at 390. There may be room for the view, on which the Privy Council acted, that such an entitlement is discretionary in the case of a beneficiary who is no more than the object of a discretionary trust and does not have the benefit of a favourable exercise of the trustee's discretion; the weight of opinion in New South Wales the other way on that issue is strong, but the plaintiff's position in the present case is even stronger as her entitlement is not discretionary but rather vested in interest. Their Lordships’ conclusion at 734-735 ([66] and [67]) would make the beneficiary's right to seek disclosure of trust documents an aspect of the Court's inherent jurisdiction to supervise, and where appropriate intervene in the administration of trusts. Although the reasons say that that right is "sometimes not inappropriately described as a proprietary right" it is plain that their Lordships did not treat the right as a proprietary right.

49 The history of Equity and the nature of its remedies mean that the treatment of equitable interests as proprietary, and the development of rules based on that treatment, can never be entirely logical or satisfactory; but if this is perceived as a problem, it is an inherent problem and should not be regarded as a basis for discarding a well-established rule.

50 An obiter dictum in the Privy Council about trust law in the Isle of Man has in my opinion very little claim to be followed at first instance in New South Wales where a different view has been accepted. The Privy Council does not exercise appellate authority over the courts of New South Wales, and its decisions made since its appellate power was abolished in 1986 have not had binding force in New South Wales. Still less have the Judicial Committee’s obiter dicta. As with other decisions which are not binding, its claim to be followed depends upon the extent to which the views expressed are persuasive.

51 The opinion of Lord Walker does not to my reading identify any error in earlier opinion, or state any respect in which it might be said to be significantly unsatisfactory. No earlier judicial decisions adopting the basis on which the Privy Council reset the law were referred to, nor were any text writers. Nor to my reading were any significant policy considerations favouring departure from the previous rules set out; the only matter indicated was an opinion that the rule enounced was a better rule. It was not explained, with any significant reasoning, why it was a better rule. 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 will 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 so elementary a matter as 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 recognize, such as the principle protecting the trustee’s discretionary considerations. Treating the entitlement to information as an aspect of the Court's discretionary exercise of its supervising power over trusts is a departure from the relatively concrete concept of equitable interests in trust property which has been adopted for some centuries.

52 In Avanes v Marshall [2007] NSWSC 191 Gzell J after review of authorities, including recent authorities in Australia in which Schmidt reference has been made to, expressed the view at [15] that the approach in Schmidt should be adopted by Australian courts. I respectfully do not agree. It might be that the approach of Schmidt is appropriate where the interest of the beneficiary is no higher than those of the potential objects of a discretionary trust, although opinion in New South Wales is otherwise. However that may be, in the present case where the plaintiff’s right is already vested in interest, it would be a departure from clearly established opinion in New South Wales not to treat the claim to information as based on a proprietary interest, or to withhold enforcement of it except so as to enforce some competing entitlement, such as that of the trustees considered In re Londonderry’s Settlement, which required such departure.

53 On the facts of the present case there is nothing in the nature of a discretionary ground on which any withholding of the plaintiff’s entitlement to information could reasonably be based. While I repeatedly sought in the course of argument to establish what discretionary ground was relied upon, nothing was referred to higher than Mrs Ellis’ objection to any information about her affairs being given to the plaintiff, expressed to Mr Ellis some years ago before incapacity overtook her. This is in the nature of a claim of confidentiality, but it is not supported by any underlying reason of greater strength than her expressed wish that the plaintiff should not know her affairs. A person who accepts benefits under a trust of which there are other beneficiaries does so on the basis that other beneficiaries also have rights in the trust, including rights to information. I characterise what is put forward as a claim to privacy, and not as a claim to confidentiality; in substance nothing was advanced as a reason for the Court to enforce Mrs Ellis’ confidentiality by withholding the rights of some other person. There is no competing principle such as protection of the position of trustees in the exercise of discretion, which was protected in In re Londonderry’s Settlement.

54 Notwithstanding my repeated enquiries counsel was not able to refer to any adverse impact on the interests of Mrs Ellis or of anyone else or any particular harm that would be done by giving the plaintiff the information she seeks. Counsel informed me that the information contained in the managing agents’ documents relating to the maintenance which has taken place is not itself the subject of any claim that it should not be produced; but production to the plaintiff herself of those documents was resisted because they disclose Mrs Ellis’s income, for which confidentiality is claimed. This is not a case where confidentiality relates to the interest of a third party. Mrs Ellis, when taking advantages under the trust, necessarily also incurs any disadvantage to her, actual or perceived, which arises out of administration of the trust.

55 On behalf of Mr Ellis it was contended to the effect that it was shown by communications in correspondence that the plaintiff's case was presented as justified by or based on a concern to see that the interests of Mrs Ellis are properly protected, that she receives income, what income it is that she receives and how her income is disbursed. It is clear that the plaintiff in correspondence by her former solicitor did put forward in strong terms a concern relating to Mrs Ellis's interests as the ground on which she claimed relief. However it is in my opinion plain, as discussion elsewhere in this judgment shows, that the plaintiff had a right herself to see the trust documents and obtain information about the trust asset. A wish to protect the interests of her mother is not a ground on which she could base a claim, but her claim is well based on her own interests, and the presence of the other asserted basis in correspondence does not justify resistance to her claim. Advance by the plaintiff of grounds which were unnecessary, or even quite wrong, in support of a claim which she has on other grounds cannot prejudice that claim or dispose the Court against granting it on those other grounds.

56 Correspondence on behalf of the second defendant asserted readiness to give the plaintiff information about expenditures on maintenance of the block of flats:

“We take the position that a beneficiary’s entitlement to view estate accounts extends only to the interest the beneficiary has in relation to the estate. For instance a beneficiary who receives a specific legacy is not entitled to be given the accounts that relate to residue. Similarly our clients are willing to satisfy your client that her interest in remainder is maintained but will not provide details of the income and outgoings on the trust property to which the income beneficiary is entitled. Accordingly we will provide to you a statement from the managing agents acting out that there are no outstanding rates or taxes on the property, the report obtained from the structural engineer and the certification relating to the fire rating of the property. If your client requires a valuation of her interest, please confirm that she will meet the cost of obtaining it and that the provision of this information will satisfy your client’s concerns.”

57 The plaintiff did not accept this limitation on the information to be given to her, either before or at the hearing. In my view there is no justification for limiting information to be furnished to the plaintiff in this way. Notwithstanding the position taken in that letter, it was maintained on behalf of Mr Ellis during the hearing, and in final submissions, to the effect that the plaintiff does not and cannot have any interest in aspects of management, including maintenance, because she as a remainderman has very limited rights of recourse against the trustee with respect to maintenance.

58 Whether or not such rights exist and whether or not the trustees have incurred any liability in respect of such rights, and the condition of block of flats, are questions which it is not necessary to consider fully and to answer for the purpose of disposing of Claim 1. In my view those questions should only be addressed and answered when and if the Court is presented with a live issue relating to some clearly expressed and comprehensible basis upon which it is said that the trustees ought to be charged with some liability. Decision on the responsibility of trustees can only be addressed on a clear basis. An attempt to give answers in the abstract may fail to meet the difficulties presented by some actual attempted impeachment of the trustees, when and if one ever eventuates.

59 Mr Ellis’s counsel contended that the present litigation is an exercise in futility because the plaintiff is not entitled to compel the life tenant or the trustee to repair the premises, let alone make a capital investment, and cannot compel the creation of a sinking fund. It would indeed be surprising if the plaintiff obtained an order compelling the trustees to take any such course, even more so, the life tenant; any judicial remedy is much more likely to take the form of imposing liability for some failure on the part of the trustees.

60 My Orders are:

(1) Direct pursuant to UCPR 10.14 that the Summons be taken to have been served on the first defendant on 11 July 2006 being the date of the second defendant’s appearance.

(2) Order pursuant to UCPR 7.10 that the second defendant be appointed to represent the persons other than the plaintiff interested in the trusts of the will of the late Harold Wilfred Wills Baker.

(3) Order that the second defendant forthwith provide to the plaintiff accounts for the years ended 30 June 1998 to 30 June 2005 of all moneys received and disbursed by him and by the first and second defendants or on behalf of him or them in respect of the assets of the trust established by Will of Harold Wilfred Wills Baker.

(4) Liberty to apply with respect to the production of trust documents and with respect to the claims in the Summons.

(5) Order that the second defendant pay the plaintiff’s costs of the proceedings.

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27/07/2009 - Revised to refer to the report of Randall v Lubrano at 72 NSWLR 621 - Paragraph(s) [42]