Re Burke Rd Development Unit Trust
[2022] VSC 78
•25 February 2022
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S ECI 2021 02078
IN THE MATTER of BURKE RD DEVELOPMENT PTY LTD (ACN 624 182 761) including in its capacity as trustee of BURKE RD DEVELOPMENT UNIT TRUST
BETWEEN:
| YES CAPITAL GROUP PTY LTD (ACN 621 812 379) | Plaintiff |
| v | |
| BURKE RD DEVELOPMENT PTY LTD (ACN 624 182 761) | Defendant |
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JUDGE: | M Osborne J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 19 August 2021 |
DATE OF JUDGMENT: | 25 February 2022 |
CASE MAY BE CITED AS: | Re Burke Rd Development Unit Trust |
MEDIUM NEUTRAL CITATION: | [2022] VSC 78 |
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TRUSTS – Application by beneficiary to inspect trust documents – Costs of production of trust documents – Trustee’s duty to account – Deutsch v Trumble (2016) 52 VR 108; Chan v Valmorbida [2020] VSC 590; Ottley v Gilby (1845) 50 ER 237; Re Bosworth; Martin v Lamb (1889) 58 LJ (Ch) 432; Marigold Pty Ltd v Belswan (Mandurah) Pty Ltd [2001] WASC 274; William Buck (WA) Pty Ltd v Faulker [No 2] [2012] WASC 257; Hatch v Harlekin Pty Ltd [2008] WASC 167 considered.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr S Hibble, of counsel | Tisher Liner FC Law |
| For the Defendant | Mr T Anast, a solicitor | Allied Legal |
HIS HONOUR:
Background
The plaintiff, Yes Capital Group Pty Ltd (‘Yes Capital’), is a unitholder in the Burke Rd Development Unit Trust (‘the Trust’), for which the defendant, Burke Rd Development Pty Ltd, acts as trustee (‘the Trustee’).
The evidence before me consists of two affidavits and their exhibits:[1]
(a) an affidavit of the director of Yes Capital, Mr Sudeep Poonia, sworn 15 June 2021; and
(b) an affidavit of a solicitor for the Trustee, Mr Talt Anast, affirmed 6 August 2021.
[1]The evidence in the affidavits was expanded upon by counsel at the hearing of the matter on 19 August 2021, though nothing further was formally deposed to either by affidavit or viva voce.
The Trust was established in 2018 to purchase and develop three townhouses at 956 Burke Road, Deepdene (‘the Development’). There were originally some eight unitholders in the Trust. As of 31 January 2021, there are only two unitholders:
(a) Yes Capital holds 25 units in the Trust; and
(b) RDKE Holdings Pty Ltd (‘RDKE’) holds 75 units in the Trust.[2]
[2] RDKE holds its units as trustee for the Vohra Family Trust. The Trust’s register shows a Mr Rishi Vohra (‘Mr Vohra’) as the original subscriber for all 100 units in the Trust. The address of RDKE, Mr Vohra, and the Trustee is listed as 20 Spartan Way, Williams Landing in the Trust’s register.
The Development has not gone to plan. Two of the three townhouses have been sold for less than originally expected. The Trust’s main asset is the last remaining townhouse.
The unitholders disagree over the best way forward for the Trust. Yes Capital wants an immediate sale of the last townhouse. The Trustee and RDKE wish to wait for market conditions to improve before the townhouse is sold.[3]
[3]There are various other disputes between the parties that emerge from the documents in evidence. Broadly, these concern the management of the Trust, as well as allegations that Yes Capital owes unpaid contributions to the Trust.
The present application
In that context, the parties now dispute the costs of production of certain documents related to the Trust.
After some correspondence, as of 9 February 2021 the Trustee had provided Yes Capital with:
(a) a spreadsheet setting out unitholder contributions as well as figures relating to the expenses and projected income of the Trust in relation the Development (‘the Spreadsheet’);
(b) a bank valuation for the townhouse dated 28 July 2020 (‘the Valuation’);
(c) a financial report for the Trust for FY 2019/2020, prepared by BK Accountants Pty Ltd (‘the Financial Statement’); and
(d) a register of unitholders as at 31 January 2021 (‘the Register’).
On 19 March 2021, Yes Capital by letter sought inter alia further documents relating to the Trust. As background to the request, the letter alleged that the Financial Statement understated its liabilities to Yes Capital by some $70,000 and expressed concern at the expenses disclosed in the Spreadsheet. As ultimately articulated in the initiating summons for this proceeding, those documents are:
(a) journal ledger transactions for each item in the Financial Statement and corroborating source documents;
(b) Business Activity Statements for the Trust as lodged with the ATO from 1 February 2018 to 31 March 2021 and corroborating source documents;
(c) any construction contracts for the Development, including evidence of total amounts paid to the builders and corroborating bank transfer records and receipts;
(d) the Trust’s bank statements from 1 February 2018 to 31 March 2021;
(e) documents evidencing initial contributions of unitholders to the Trust, including bank transfer records and receipts; and
(f) documents evidencing deposits received by the Trust or the Trustee for the sales of two of the townhouses at 956 Burke Rd, Deepdene.
(collectively, ‘the Documents’)
The Trustee did not at the time respond to Yes Capital’s request. On 22 April 2021, a further request in substantially the same terms was made, which noted that if the documents were not provided by 4:00pm on 7 May 2021 then Yes Capital would issue proceedings in this Court.
On 7 May 2021, the Trustee by its solicitors responded noting inter alia that it would provide the documents, but sought payment for the costs of production from Yes Capital in the amount of $6,600.[4]
[4]The sum of $6,600 was sought by the Trustee as part of a demand for the larger sum of $30,100. The balance of that sum was sought in the context of a dispute as to unpaid contributions, as mentioned above.
On 11 May 2021, Yes Capital responded. It offered to pay for the costs of production of the documents, but requested an itemised invoice for the estimated costs of $6,600.
On 27 May 2021, the Trustee responded. It addressed the production of documents in a short paragraph:
As requested, we have separately attached a letter from the trustee’s accountant, providing an estimate of fees to produce the documents requested by your client. If Yes Capital seeks these documents, the trustee requires that $6,600 be transferred into its bank account, the details of which appear at the end of this correspondence, by 5pm, Wednesday 10 June 2021.
The attached email from the accountant, Mr Amit Bhuta, stated:
As requested per letter dated 19 March 2021 from Tisher Liner FC Law, I hereby provide a breakdown of my fees for collating all the required documents.
Principal Owner - $350 per hour
Senior Accountant - $250 per hour
Junior Accountant/Admin - $120 per hour
Based on the information asked, we have estimated costs between $4,000 to $6,000 plus GST considering the time involved of the principal owner and senior accountant in collating all the information.
…
On 16 June 2021, without further correspondence between the parties, Yes Capital issued these proceedings by originating motion and summons seeking production of the Documents. In contrast to its position as of 11 May 2021, Yes Capital now seeks that the Trustee bear the costs of production of the Documents.
On 19 August 2021, I heard the application. By that time the issues between the parties had narrowed solely to the question of the cost of production of the Documents. The Trustee remained willing to provide the Documents if Yes Capital paid the estimate of $6,600, with any difference between the actual costs incurred and the upfront amount to be adjusted between the parties as the case may be.
Accordingly, on that day and after hearing full argument I made orders for production of the Documents and an order that in the first instance the costs of production of the documents be borne by the Trustee subject to further order. In addition I ordered the parties to mediate, to be conducted by a judicial officer and to be completed by 22 October 2021. I indicated that, were the mediation unsuccessful, I would determine whether the order that the Trustees bear the costs of production in the first instance should be subject to further order and determine the costs of the proceeding.
Having regard to the estimated costs of production ($4,400 to $6,600) it is beyond regrettable that the inability of the parties to reach agreement on that question has prompted the commencement of this proceeding.
The parties sought various extensions to the period of time by which to complete the mediation. The matter was mediated on 15 February 2022 by Judicial Registrar Conidi. Regrettably, it failed to resolve.
Authorities
The parties do not dispute that a trustee has a duty to keep and render proper accounts to beneficiaries,[5] and that the duty extends to producing trust documents to beneficiaries for inspection.[6]
[5]Kemp v Burn 66 ER 740; Byrnes v Kendle (2011) 243 CLR 253, [42].
[6]O’Rourke v Darbishire [1920] AC 581, 626 (Lord Wrenbury); Re Fairbairn [1967] VR 633, 635-40 (Gillard J).
The only issue between the parties is who is to pay for the costs of production, which has taken place pursuant to my orders.
Yes Capital relies on Deutsch v Trumble[7] and Chan v Valmorbida[8] in support of its claim for production of the Documents. The Trustee also referred to Deutsch v Trumble in support of its position.
[7](2016) 52 VR 108.
[8][2020] VSC 590.
In Deutsch v Trumble, two brothers, Robert and Erwin, were engaged in a long-running dispute over the beneficial ownership of a trust. After Erwin was found to repudiate a deed of settlement, Robert was granted judgment against Erwin for a sum in damages exceeding the value of the trust assets. The trustee of the trust was ordered to pay all the trust assets, with minor exceptions, to Robert pursuant to the judgment debt. After Erwin appealed, the brothers reached terms of settlement wherein Robert released Erwin from the judgment debt, and Erwin agreed for the residue of the trust to be paid to Robert. This resulted in a situation where the proceeding was effectively determined in favour of Robert, yet both parties remained beneficiaries of the Trust which held minimal funds.
In his capacity as a beneficiary, Erwin applied to inspect various documents relating to the trust. The trustee resisted production on the grounds that he should be entitled to estimate the costs of production, and that Erwin should pay those costs of production into court prior to the trustee undertaking the production process. The trustee was concerned that the remaining trust funds may not be sufficient to indemnify him.
Hargrave J concluded that a beneficiary has a prima facie entitlement to inspect and copy ‘trust documents’.[9] Accordingly, His Honour found the trustee ought to produce the documents to Erwin; the documents sought in that case comprised ledgers, professional services invoices, and charges and costs incurred by and to the trustee.
[9]Deutsch v Trumble (n 7) 125-7 [66] – [73].
Hargrave J ordered that Erwin, as the applicant beneficiary, ought pay in advance for the costs of production.[10] His Honour was concerned that:[11]
Mr Trumble should not be left in a position where, as a court-appointed trustee, he faces the risk of performing substantial work without proper reward. As noted, the remaining trust funds are not substantial and, in any event, there was no reason why Robert Deutsch should have his trust entitlement depleted by reason of Erwin Deutsch’s application, which he does not support.
[10]Deutsch v Trumble (n 7) 127-9 [82] – [84].
[11]Ibid 128-9, [83].
Chan v Valmorbida provides a counterpoint to Deutsch v Trumble. In that case, Delaney J ordered that the Trustee pay the costs of production.[12] Documents had been requested by a beneficiary and provided by the trustee on a piecemeal basis, in a manner his Honour described as ‘inefficient and time consuming’.[13] Ultimately, his Honour determined that:[14]
I have ordered that Trustees should bear the costs of production of the documents for inspection. In determining it is appropriate that the Trustee should bear the cost of producing the documents I have borne in mind that both parties to the dispute consider that access should be given to all documents produced to all beneficiaries.
…
[12]Chan v Valmorbida (n 8) [167].
[13]Ibid [108].
[14]Ibid [167].
The primary issue in both Deutsch v Trumble and Chan v Valmorbida was the characterisation of the beneficiary’s access to the trust documents.[15] In both cases, the costs of production were apportioned in light of the facts of the case.
[15]The competing approaches are often referred to as the ‘proprietary approach’ and the ‘discretionary approach’. This issue has been the subject of controversy. In the case of discretionary objects of a trust, the alternative ‘discretionary approach’ now applies, at least in Victoria: see Chan v Valmorbida (n 6). Yes Capital, as a unitholder in the Trust, has a fixed interest in all the trust assets; accordingly, it is neither necessary nor helpful to consider the different approaches in the context of the present case.
There are numerous statements in the authorities that the beneficiary is to pay the costs of production of trust documents.
Jacobs’ Law of Trusts in Australia (‘Jacobs’) states:[16]
… if a beneficiary asks for accounts or for information, the trustees are entitled to be paid by the beneficiary the cost of supplying the accounts or information and if they choose, may require payment in advance.
[16]J D Heydon and M J Leeming, Jacobs’ Law of Trusts in Australia (LexisNexis, 8th ed) [17-14].
Halsbury’s Laws of Australia states:[17]
A trustee is entitled to receive from the inquiring beneficiary the costs, if any, of furnishing information either in advance or by guarantee.
[17]LexisNexis, Halsbury’s Laws of Australia (online at 22 February 2022) [430-4230].
The Law of Trusts by H. A. J. Ford and W. A. Lee states:[18]
It is submitted that well-intentioned trustees should always respond generously to beneficiaries’ reasonable requests for information; but the rule that the beneficiary must pay the cost of obtaining copies … will constitute a disincentive to frivolity.
[18]H A J Ford and W A Lee, Thomson Reuters, The Law of Trusts, vol 1 (at update 179) [9.7470].
These opinions are supported by two early English cases, Ottley v Gilby[19] and Re Bosworth; Martin v Lamb.[20]
[19](1845) 50 ER 237.
[20](1889) 58 LJ (Ch) 432.
In Ottley v Gilby, a legatee was informed by the estate’s personal representatives that there were insufficient funds to pay his legacy. He sued for an account and, upon its provisions, it was shown that the estate held a small surplus that was totally insufficient to pay any of the legacies in the state. The legatee sought that the representatives bear the costs. Langdale MR stated, in clear disapproval of the legatee’s litigation of the matter:[21]
A legatee has a clear right to have a satisfactory explanation of the state of the testator’s assets, and an inspection of the accounts, but he had no right to require a copy of the accounts at the expense of the state.
[21]Ottley v Gilby (n 19) 238.
In Re Bosworth; Martin v Lamb, the plaintiffs believed they were entitled under a will. They applied to the trustees for information with respect to the estate. The trustees informed the plaintiffs that they were not entitled under the will, but offered to provide the plaintiffs with the desired information if they undertook to indemnify the trustee for its costs. The plaintiffs commenced an action for account and, upon discovering they had no entitlement under the will, sought to discontinue the proceedings without paying the trustees’ costs. Kekewich J said:[22]
Now, if it were merely a question such as ‘Have you received such and such a letter?’ or ‘In what name do the stocks stand?’ or some very simple thing, it might have been discourteous – I am not sure it would not have been within their strict rights, thought it might have been discourteous – to refuse the information; but here the question was about documents which had been executed, and about which no trustee could well give information without his solicitor’s assistance ... [W]hat are the trustees to do?
They must either do one of two things- either say, ‘Will you pay the costs?’ which they did here; or they must either incur the expense themselves, and make themselves liable to the solicitor whom they will have to pay out of their own pockets, or they must incur it on behalf of the trust estate. Why they should incur expenses to be paid out of their own pockets, I cannot conceive; and it certainly would be wrong of them to incur expenses to be paid out of the trust estate, unless the costs were such as ought to be properly thrown on the trust estate.
[22]Re Bosworth; Martin v Lamb (n 20) 433.
In both Ottley v Gilby and Re Bosworth; Martin v Lamb the requesting party had been informed in good faith that they either had no entitlement in the trust assets or that the trust assets were meagre. Moreover, they need to be read in the context of the costly procedures for accounts employed by the courts of equity at the time.
More recently, a string of West Australian cases discussed these authorities in light of the cost of photocopying documents.
In Marigold Pty Ltd v Belswan (Mandurah) Pty Ltd (‘Marigold’),[23] White AUJ, after considering Ottley v Gilby and Re Bosworth; Martin v Lamb, stated:[24]
Unless therefore, there is otherwise some obligation on a trustee to provide copies of documents to a beneficiary, derived perhaps from the Trust Deed, the beneficiary is not entitled to demand the provision of copies of documents from the trustee. I think that there is an obligation on a trustee to render proper accounts to the beneficiary from time to time but, so far as any other documents than financial records appertaining to the trust are concerned, I am not persuaded that there is a right in a beneficiary to obtain copies thereof, merely upon tendering to pay the cost of copying. Of course, there is no reason why a trustee should not deliver copies of trust documents requested by a beneficiary, if the trustee wishes to do so.[25]
[23][2001] WASC 274.
[24]Ibid, [22].
[25]White AUJ’s insistence that there is no right to copy is perhaps extreme. As Ford and Lee note, to deny the right to copy effectively renders nugatory the right to inspect: see The Law of Trusts (n 18) [9.7030].
In William Buck (WA) Pty Ltd v Faulker [No 2],[26] Kenneth Martin J dismissed claims by a trustee for confidentiality over certain documents, and directed that the trustee must submit to the copying of the documents at the expense of the requesting beneficiary.[27]
[26][2012] WASC 257.
[27]Ibid, [24].
In Hatch v Harlekin Pty Ltd,[28] the plaintiff beneficiary sought to inspect the trust documents. The trustees advised the plaintiff that production of the documents would incur legal costs. The beneficiary agreed to pay the costs of photocopying and collation. However, the beneficiary disputed whether he should pay the trustee’s legal costs, contending that they should be met out of the trust assets. Sanderson M stated:
In my view, to be logically consistent a trustee who takes advice consequent upon a request for trust documents, should be entitled to reimbursement for those legal costs from the party who makes the request. I see no reason why the costs of copying and collating the documents should be reimbursed by the party making the request, but not the costs of taking advice as to what documents ought be provided. That might be seen as a general rule. Of course the circumstances of each case may determine whether or not that general rule ought apply. For instance, if the matter was entirely straightforward, the request simple and the whole trust structure uncomplicated, then it is difficult to see why legal advice might be necessary and reimbursement might not be ordered. But it would be for the party making the request to show that the taking of the advice was, in all the circumstances, unreasonable and reimbursement ought not be made.
[28][2008] WASC 167.
From the above cases, it is clear that the general rule is that the requesting beneficiary bears the costs of copying and collation of the documents. Accordingly, prima facie Yes Capital should pay the costs of provision of the Documents. This would extend to the costs of collation for those items which are numerous or detailed.
However, it is the duty of a trustee to ensure that the accounts are kept in a proper form and ready for provision to the beneficiaries.[29] As McMillan J stated in Re Anthony; Rogan v Rogan:[30]
The duty to account carries with it an entitlement of the beneficiaries to view the records and supporting evidence in order to monitor the proper administration of the estate. An executor should provide these documents willingly rather than reluctantly as observed by Lloyd AJ in Yates v Halliday:
It is not a sufficient answer to simply invite the plaintiffs or their representatives to sort through two boxes of documents to determine whether the estate was properly administered. It was Mr Halliday’s duty as executor and trustee to keep and produce when requested appropriate records demonstrating how the estate was administered
[29]Strauss v Wykes [1916] VLR 200, 204 (Madden CJ).
[30][2017] VSC 668.
The costs of preparation of such accounts, insofar as they are to be undertaken by the trustee as part of its ordinary administration of the estate, and not at the request of the beneficiaries, are naturally to be borne by the trust estate.[31]
[31]Bearing in mind the trustee’s right to indemnify itself out of the trust assets, as provided for in statute: s 38 of the Trustee Act 1958 (Vic); and at equity: Carter Holt Harvey Woodproducts Pty Ltd v The Commonwealth (2019) 368 ALR 390 [29] (Kiefel CJ).
In the instant case, the standard that the accounts kept by a corporate trustee should meet is prescribed by s 286 of the Corporations Act 2001 (Cth):
(1)A company, registered scheme or disclosing entity must keep written financial records that:
(a) correctly record and explain its transactions and financial position and performance; and
(b) would enable true and fair financial statements to be prepared and audited.
The obligation to keep financial records of transactions extends to transactions undertaken as trustee.
The requirement to keep accounts is also recognised in the deed for the Trust. Clause 7.1 provides:
The Trustee must manage the Trust Fund and any business for the time being carried on by the Trustee pursuant to the Trust Deed and without limitation the Trustee agrees to:
…
(d) Accounts
(i) keep or cause to be kept proper books of account of all sums of money received and expended by or on behalf of the Trust Fund and the matters in respect of which such receipt and expenditure takes place and of all sales and purchases of investments and of the assets and liabilities of the Trust Fund;
(ii) without limitation must keep or cause to be kept such accounting and other records in respect of any business for the time being carried on by the Trustee pursuant to the provisions of this Deed, as will sufficiently explain the transactions and financial position of the said business and enable true and fair profit and loss accounts and balance sheets and any other accounts from time to time required to be prepared in respect of the said business and cause those records to be kept in such manner as to enable them to be audited;
…
A trustee may employ accountants to assist in keeping accounts.[32]
[32]Henderson v M’Iver (1818) 56 ER 510; Wroe v Seed (1863) 66 ER 773. Sections 26 and 27 of the Trustee Act 1958 (Vic) provide that a Trustee may retain agents to audit and prepare accounts.
Analysis
The position arrived at, then, is that the beneficiary ought to pay for the provision of the accounts, but the trustee ought pay for the preparation of those accounts, to be properly kept by it in accordance with its duty to account.
At the hearing of the matter, the Trustee submitted that it had provided to Yes Capital all documents that it had on hand, but had resisted production of the Documents as they would have required the assistance of an accountant to prepare for inspection. Taking the Business Activity Statements as an example, the Trustee noted that their provision would require the retrieval and collation of some 10 to 11 statements, as well as the source material used to produce them. The Trustee did not volunteer to provide the Business Activity Statements without the accompanying source material.
I accept that the cost of production for the Documents requested by Yes Capital will vary widely between the categories sought. For some, the costs of collation would be minimal assuming that the accounts have been properly kept; these include bank statements, Business Activity Statements, and deposit receipts for unitholder contributions. Others, such as journal ledger transactions and source materials, might require greater efforts on the part of the Trustee, or as the case may be, its accountant. It may be that the Trustee is not be expected pursuant to its duty to account to keep those items in a readily producible form.
To break down the costs involved and to apportion them between Yes Capital and the Trustee in light of the above principles would at the very least require an itemisation of the work to be undertaken by the accountant. I note that upon requesting an itemised invoice of the costs involved in producing the Documents (and generously offering to pay those costs) Yes Capital was provided with a brief email listing an accountant’s hourly rates. In those circumstances, it is difficult to apportion the costs in any meaningful way.
I have some sympathy with Yes Capital. It has demonstrated a willingness to pay the costs of production, but is concerned at the size of the quoted fee in circumstances where it expected the Trustee to have many of the Documents already in its possession. While that expectation may be unrealistic in the case of the journal ledger transactions and source documents, the Trustee did not provide an itemised invoice nor expand on its position and the efforts involved. This did little to clarify the situation for Yes Capital.
The commercial reality is that the Trustee is controlled by one unitholder, RDKE. By reason of the practical identity of interest between RDKE and the Trustee, RDKE has oversight of the Development and knowledge of the financial records and documents of the Trustee. The other unitholder, Yes Capital, does not. When the practical reality is taken into account, alongside the insufficient and at times dilatory responses of the Trustee to Yes Capital’s requests, in my view it is appropriate that the Trustee ought pay the expenses of the accountant in producing the documents. The Trustee will be able to recoup or exonerate itself of these expenses out of the trust assets.
Accordingly, I do not propose to make any additional order in relation to the costs of producing the documents beyond that made on 20 August 2021.
I shall hear the parties as to the costs of the proceeding, and as to what other orders or directions (if any) shall be made in the proceeding.
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