Oxer v Astec Paints Pty Ltd (No 2) - [2006] SASC 271

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
OXER v ASTEC PAINTS PTY LTD (NO 2)
[2006] SASC 271
Reasons of Judge Lunn a Master of the Supreme Court
7 September 2006
EQUITY - TRUSTS AND TRUSTEES
Application by beneficiary for inspection of Trust records - already had obtained an inspector's Report under s 84C of the Trustee Act 1936 - held s 84B of that Act which made it an offence for a trustee not to produce prescribed records did not empower the Court to order their production - held Court had a discretion whether to order production of such records and would not do so when the request was unreasonable and oppressive.

OXER v ASTEC PAINTS PTY LTD (NO 2)
[2006] SASC 271
Reasons on Plaintiff’s Application for Discovery of Documents

The defendant is the trustee of the Ceramic Coatings Unit Trust (“the Trust”) which was set up under a deed made on 13 November 1989. As at early 2002 the plaintiff’s family trust held 25 percent of the issued units in the trust, and another 55 percent of the units were held by the M K Waters Family Trust which was controlled by Mark Waters. Prior to late 2003 the plaintiff and Mr Waters were the only directors of the defendant, and both were employed in the business of the defendant. There was a falling out between them and, in circumstances which are the subject of some dispute, the plaintiff ceased to be a director and an employee of the defendant.
On 11 March 2005 the plaintiff instituted this action seeking an order under s 84C of the Trustee Act 1936 (“the Act”) that an inspector investigate the administration of the Trust. In his supporting affidavit he alleged the defendant was in breach of its duties of trustee on eight separate grounds. After a contested hearing on 30 May 2005 I ordered (see reasons [2005] SASC 192) that Brian Morris be appointed as an inspector to investigate the administration of the trust.
On 3 November 2005 Mr Morris presented his report to the Court (“the Report”). It apparently deals with each of the eight matters which the plaintiff had alleged as defaults by the defendant. Neither party has challenged the adequacy of the Report nor sought that any supplementary report be directed.
Broadly speaking the Report found three areas of irregularity in the accounts put forward by the defendant for the Trust, but did not support the majority of the allegations made by the plaintiff.
On 9 December 2005 I gave leave to the plaintiff to amend his summons to specify what further relief he sought. I directed that he file an affidavit in support of that relief, and that the defendant file an answering affidavit. There was not, and has never been, any application for the action to proceed on pleadings. (The reasons pleadings apparently were not pursued was that the plaintiff was pressing to have the action resolved on affidavit evidence without the delay of it being referred into the trial list).
On 23 February 2006 the plaintiff filed an amended statement of orders sought which were that the defendant be removed as the trustee and another trustee be appointed in its place, and that the defendant pay the costs of the inspector’s investigation and the action. The affidavit filed in support was merely one from the plaintiff’s solicitor quoting from various parts of the Report.
At a directions hearing on 1 May I queried the adequacy of the supporting affidavit. This raised the question of the evidentiary status of the Report, and whether it was necessary for the plaintiff to file further affidavits establishing by admissible evidence the parts of the Report on which he wished to rely for the removal of the defendant as the trustee. Counsel for the plaintiff indicated that he may wish to rely on matters not contained in the Report. I ruled that under r 7.04 the affidavits were to be treated as quasi pleadings, and the plaintiff would have to file affidavits containing admissible evidence about these further matters. Counsel for the plaintiff then indicated that access would be needed to the Trust records before the plaintiff’s case could be fully formulated. On 25 May the defendant filed an affidavit of Mr Waters responding to the matters in the Report which were being relied upon in the affidavit of the plaintiff’s solicitor as his basis of claim.
On 4 July the plaintiff issued a Notice seeking orders that the defendant “produce all Trust records for examination and copying in accordance with s 84B of the (Act) or, ….. in the alternative, the defendant provide discovery”. The application was stated to be brought pursuant to s 84B of the Act and/or r 58.04.
This application was supported by an affidavit of the plaintiff’s solicitor exhibiting a number of letters which had passed between the solicitors for the parties on the topic of disclosure of the Trust records. I now précis the relevant parts of this correspondence.
On 27 April the plaintiff’s solicitors wrote to the defendant’s solicitors and posed 16 questions about various activities and transactions of the Trust. In essence they were quasi interrogatories. On 28 April the defendant’s solicitors replied stating that the questions were not relevant to the matters in dispute, and the majority related to matters which had already been investigated by Mr Morris. On 2 May the plaintiff’s solicitors wrote requesting production for inspection and copying by the plaintiff of “all records kept by the trustee pursuant to the requirements of” the Act. The defendant’s solicitors responded that day indicating that the defendant was willing to comply with its obligations under the Act, but that the request for documents was so broad and undefined that it was oppressive and unreasonable, and requesting that the documents sought be specified with greater particularity. On 4 May the plaintiff’s solicitors replied, limiting their request to the following five categories of documents:
1)All documents that were provided to Brian Morris or any of his colleagues in the course of conducting the inspection;
2)Documentation in relation to the employment of Mrs Theodora Waters by the trust;
3)The trusts bank account statements pertaining to the business of Astec Paints for the period ending 1^st July 2004 through to the most recent statements;
4)The sale agreement for the units in the unit trust from Venturecorp Pty Ltd to MK Waters Pty Ltd and any minutes or transfers or certificates pertaining thereto;
5)All correspondence in relation to the sale of the Venturecorp Units including but not limited to correspondence advising our client of his ability to participate in the sale on a pro rata basis.
On 25 May the defendant’s solicitors wrote:
With regard to your itemised list we respond as follows:
1.“Documents provided to Brian Morris or any of his colleagues in the course of conducting the inspection.”.
1.1    As we understand it from Edwards Marshall, Mr Morris has already given you access to all documents held by him that he obtained from our client and its accountant. You do not have Edwards Marshall’s working notes and correspondence between that firm and the parties’ solicitors, but we have no objection to you receiving this further material. We assume that you do not object to Edwards Marshall providing us with your correspondence to them.
1.2    If you are requesting access to documents inspected by Mr Morris and his team, he has advised us that he cannot say for certain what documents he has inspected, but if Mr Clifford of his firm were to re-attend at the premises of our client and the accountants and list the documents that he inspected, this could be done. If your client is willing to pay for the cost of such an exercise (at a rate of $250.00 plus GST) per hour, then we can arrange for it to occur.
1.3    Given that Mr Morris and his colleagues were appointed at your client’s request to inspect the documents, they have done so and reported to the Court, we believe that our client has complied with its obligations to provide access to the records and that your further request for access is unreasonable and unnecessary.
1.4    However, once the areas of dispute have been clarified before Judge Lunn, our client will give further consideration to your request.
2.     Documentation relating to Mrs Waters’ employment
2.1     Your request lacks particularity.
2.2    In any event, we note that at your request Mr Morris and his colleagues have already inspected documents relating to Mrs Waters’ employment (as is mentioned in Clauses 11.20-11.27 of his Report) and have found the records to be in order.
3.     Trust Bank Account Statement for 1 July 2004 – Present
3.1    Mr Morris has already inspected the majority of this bank statement.
3.2    To make this document available will disrupt the ongoing day to day business of the Trust.
3.3.   The request is oppressive and without some reference point might be seen as an ambit claim.
3.4    We will respond to you further on this topic by separate correspondence.
4.Agreements and Resolutions re the Sale of the Venturecorp Units to MK Waters Pty Ltd
4.1    At your request, Mr Morris and his colleagues have already inspected and fully investigated the circumstances of the purchase of the unites by M K Waters Pty Ltd and he has found the transaction to be a legitimate one. We refer to clauses 5.1-5.9 of the Report.
4.2    The documents have been provided.
5.     Correspondence in Relation to the Venturecorp Sale
5.1    As previously stated, Mr Morris and his colleagues have already inspected and fully investigated the circumstances of the purchase of the units by M K Waters Pty Ltd and he has found the transaction to be a legitimate one.
5.2    In the circumstances, therefore, we do not see that it is reasonable for you to request further access to the documents.
Mr Morris and his colleagues have undertaken a detailed and thorough investigation of the activities of the Trust. Whilst our client is aware of its obligations under the Trustee Act, it has complied with the same in providing the information to Mr Morris.
Your client’s ongoing requests are onerous and unreasonable.
On 2 June the defendant’s solicitors wrote again:
At present, we have received no identification of documents or class of documents of which your client seeks discovery. The only correspondence that we have received from you on this topic makes an ambit claim for documents without attempting to identify in what way the documents are directly relevant to the matters in issue in the proceedings post receipt of Mr Morris’ report.
The plaintiff’s Notice of 4 July 2006 purported to seek an order under s 84B of the Act. That section provides:
(1) A trustee shall keep such records relating to his administration of the trust property as may be prescribed.
Penalty: Five hundred dollars.
(2) A trustee shall, at the request of - …
(c) …
produce the records kept by the trustee in pursuance of this section for inspection and permit … the beneficiary … to examine and make copies of those records.
Penalty: Five hundred dollars.
Although the argument has been run on a number of occasions, I am not aware of any decision where it has been decided that s 84B gives a civil remedy to a beneficiary to require the production of trust records. The section only provides a penal sanction. This is to be contrasted with the civil remedy provided in s 84C for the appointment of an inspector. I do not consider there is a source of power in s 84B for the Court to order production in civil proceedings. It is not necessary for me to decide whether the defendant is in breach of s 84B. The plaintiff’s request for documents, as limited in its letter of 4 May 2006, is not necessarily confined to prescribed records under s 84B. The defendant argues that its obligation under s 84B is subject to the terms of the request not being unreasonable and/or oppressive. I do not need to decide that.
In the alternative the plaintiff’s counsel relied upon the equitable powers of the Court to require a trustee to provide information about the affairs of the Trust to a beneficiary. The defendant did not dispute that this Court has the power to make the orders sought by the plaintiff, but submitted that in its discretion it should not do so.
The law on the topic in this State is set out by Doyle CJ, speaking for the Full Court, in Rouse & Ors v IOOF Australia Trustees Limited (1999) 73 SASR 484 at 499 – 500:
Despite the lack of guidance from the case law, I consider that the trustee must be entitled to refuse access to trust documents, and not only when that is done to maintain the confidentiality of the reasons for the exercise of a discretion when the beneficiaries have no right to access to those reasons. To begin with, there may be cases in which an obligation of confidentiality attaches to documents in possession of the trustee by virtue of the circumstances in which those documents were received. The fact that a person is a beneficiary may mean that the obligation of confidentiality is not an objection to the person inspecting the documents, but in my opinion it is conceivable that there will be cases where a trustee receives a document under circumstances such that, to allow inspection by a beneficiary, would give rise to a breach of obligations of confidentiality imposed upon the trustee. The present case does not fall in this category, because the assertion of confidentiality is made by IOOF, and is not made in response to an obligation imposed upon IOOF.
However, it seems to me that it would be right to recognise that a trustee might refuse to permit inspection of trust documents on grounds of confidentiality, however the claim of confidentiality might arise. To say that is not to say that it will always be open to a trustee to claim confidentiality. It is to do no more than acknowledge that in principle a trustee should be able to advance a claim of confidentiality in answer to a right of inspection asserted by a beneficiary. Whether the claim is a valid answer in a particular case will depend upon the particular circumstances.
There must be various situations in which a trustee, particularly a trustee conducting a business, would be put in an impossible position if the beneficiary of the trust could, as a matter of right, claim to inspect documents in the possession of the trustee and relevant to the conduct of the business. It is readily conceivable that there will be situations in which an undertaking of confidentiality is not sufficient protection. The fact that the trust is one in which numerous beneficiaries have an interest, and the further fact that those beneficiaries may have differing views about the wisdom of the course of action being pursued by the trustee, only serve to emphasise, in my opinion, the need for the law to recognise some scope for a trustee to refuse to disclose information on the grounds that it is confidential and on the further ground that the disclosure is not in the interests of the beneficiaries as a whole. I make that observation on the basis and on the assumption that the ultimate right of the beneficiaries will be to have the trustee removed if they are dissatisfied with the approach of the trustee.
Ultimately, I would rest the existence of the relevant discretion upon the need to reconcile the undoubted duty of a trustee to make disclosure to beneficiaries of information about the trust, and the undoubted duty to permit the inspection of trust accounts and trust documents, with the equally fundamental obligation of a trustee to conduct the affairs of a trust, and particularly a trust which involves the conduct or management of a business, in the interests of the beneficiaries as a whole. I consider that on occasions the reconciliation of these interests may entitle a trustee to decline to provide information to particular beneficiaries, when the trustee has reasonable grounds for considering that to do so will not be in the interests of the beneficiaries as a whole, and will be prejudicial to the ability of the trustee to discharge its obligations under the trust. It may be that the ultimate foundation of the discretion is the obligation of the trustee to discharge its duties to manage the affairs of the trust in the interests of the beneficiaries.
I wish to make it clear that the discretion that I envisage is a limited one, and must always be limited by the general duty of disclosure by a trustee to which I have referred. The existence of the discretion cannot be used as an excuse for paternalism or to disregard the interests of beneficiaries. Its existence depends upon the need to protect the trustee’s ability to discharge its obligations. The availability of the discretion will depend very much upon the circumstances of the particular case.
I therefore conclude that the right of a beneficiary to inspect trust documents is qualified by the existence of the discretion to which I have referred. It is impossible and pointless to state the scope of the discretion with any precision. All that can be said is that there may be circumstances in which the trustee can properly claim that there are trust documents of a confidential nature that a trustee may refuse to disclose to particular beneficiaries in the interests of the discharge of the trustee’s duties to the beneficiaries as a whole. Once again, lest I should be misunderstood, there is one other qualification that I would make. I do not, in what I have said, contemplate the use of that discretion to enable a trustee to deal in a partial or discriminatory manner as between beneficiaries or groups of beneficiaries, except to the extent that the necessary result of a proper exercise of the discretion may be that particular beneficiaries are not given access to a document.
In exercising the discretion of the court, it is necessary to consider the context in which the plaintiff is seeking the orders. He has already obtained an order under s 84C of the Act and an inspector has investigated the affairs of the Trust, including all the matters of which he initially complained. The inspector, in preparing his Report, has apparently had access to all of the records of the Trust, including any which might not be properly disclosable to the plaintiff. Having carried out his investigation in a manner which has not been challenged, the inspector, as an officer of the Court, has not substantiated many of the allegations made by the plaintiff. As the plaintiff’s counsel admitted on earlier directions hearings, the purpose of the exercise is to obtain the documents which the inspector saw to have them put before another forensic accountant to check the conclusions reached by the inspector. In effect the plaintiff is seeking to see if he can undermine the Report of the inspector and obtain additional grounds on which he can rely in his application to remove the trustee. There is some uncertainty about the evidentiary status of the Report on the matters in issue in this action. I do not intend to go into this point. While I do not say that the plaintiff cannot seek to have the Court make findings contrary to the Report, the Court should be reluctant to facilitate attempts to undermine its inspector’s Report, particularly when no challenge has been made to the adequacy of the Report.
As the defendant’s counsel pointed out, the defendant has not refused to produce for inspection all of the documents which were provided to the inspector in the course of his investigation as was requested in paragraph 1 of the letter of 4 May 2006. The defendant, in its letter of 25 May, has pointed to the inspector being unable to say precisely which documents he inspected, but a list could be compiled by the inspector and his staff if the plaintiff pays the cost at $250 plus GST per hour. It is not proper to expect the defendant to meet that cost.

The request by the plaintiff for documents in the letter of 4 May is very general and wide-ranging. In the circumstances of the plaintiff already having had the benefit of the independent inspector’s Report, it is oppressive for the defendant to have to go to the expense and trouble of producing such an array of documents.
I accept the submission of the defendant’s counsel that the breadth and generality of the present request is unreasonable and oppressive, and that the Court does have a discretion to refuse an order for production in those circumstances, even though the plaintiff does have a general right to production of the Trust records. This does not mean that the plaintiff would fail if it sought an order in narrower and more specific terms for production of Trust documents. It is not for the Court now to define a narrower order which might be made Insofar as the documents sought are outside the issues raised on the present affidavits it is an impermissible fishing expedition by the plaintiff to obtain further documents.
An alternate order sought was for discovery of documents under r 58.04 which applies by virtue of r 58A.10. Such an order is to be confined to the issues as defined by the affidavits in support of, and opposition to, the relief sought. Many of the documents sought are not related to the matters in the paragraphs of the Report on which the plaintiff relies. There would seem to be no good purpose in having piecemeal discovery and it should wait until all of the issues have been defined by the affidavits.
Accordingly, the plaintiff’s application of 4 July 2006 is dismissed.