Rouse v IOOF Australia Trustees Limited No. Scgrg-98-257 Judgment No. S7000

ROUSE & ORS v IOOF AUSTRALIA TRUSTEES LIMITED
[1998] SASC 7000

Williams J

The Point at issue
In the absence of special circumstances, a beneficiary under a trust prima facie has a right to inspect the contents of trust documents in the trustee’s hands; generally, upon request by the beneficiary and subject to payment of any associated costs, a beneficiary may exercise that right. The defendant trustee asserts that there are categories of documents to which in the present case the general rule does not apply. The issue before me concerns the grounds upon which in special circumstances a trustee may withhold documents from a beneficiary’s inspection.
The plaintiffs as beneficiaries claim to exercise against the defendant trustee a proprietary right to examine trust documents; the argument before me has called in question the true nature of that right (how ever it may be expressed). Identification of the legal principle which supports the general rule is useful as a starting point for assessing the circumstances which (as now relevant) might lead to the case being treated as special - so as to require a departure from the general rule.
Upon the facts of the present case it has been argued that special circumstances restricting the general right of access may be created by reason of:
(i).... the purpose of the trust and the duties of the trustee arising thereunder and
(ii)the relationship (whether in commercial or personal terms) of the beneficiary to the trust.
Two critical factors which apply to this case are:
(i).... The plaintiffs’ right is asserted upon the footing that the plaintiff beneficiaries do not seek (nor need) to justify the exercise of that right by reference to any explanation. It is a right which is sought to be exercised “out of the air” (a phrase used by Salmon LJ in In re Londonderry Settlement (1965) Ch 918 at 938).
(ii)There is no allegation of impropriety (or lack of good faith) made against the trustee and no over-riding public interest has emerged; there is also nothing about the documents which by their nature require disclosure - for example the documents constituting the trust. (see per Sheller JA in Hartigan Nominees v Rydge (1929) 29 NSWLR 405 at 447).
The situation before me would be significantly different if there were a change in either of these factors.
The defendant trustee refuses to make documents available upon the grounds that they are confidential; the papers comprise the trustee’s brief to counsel in proceedings brought by the trustee against two of the present plaintiffs; the subject matter of those other proceedings is generally known to the parties as “the Management Dispute”. The trustee has there sought an account; the stakes are high; the costs associated with the conduct of the management dispute now amount to millions of dollars for a trial before me which after three months of hearing time is estimated to take six months.
I proceed upon the basis that it is possible that the group of beneficiaries who now seek access to trust documents may wish to test the reasonableness of the actions of the trustee in maintaining the Management Dispute. I have not been given a reason as to why access is sought and (as I have already observed) the claim has proceeded upon the basis that the reasons of the beneficiaries are not material to the exercise of their rights. However, in resisting the beneficiaries’ claims, the trustee would seek to ascribe mischievous motives to some at least of the plaintiffs. For reasons which appear below (see s4) I have firmly set my face against investigating any such assertion. I have limited my considerations to the point of law which I have isolated and which is capable of being resolved upon agreed facts.
This is not a case in which (as between hostile parties) discovery is sought for a purpose auxiliary to the obtaining of some relief. On the contrary, the inspection is sought by plaintiffs who claim that the interest of the defendant is (or ought to be) the same as their own. No question of privilege arises in the ordinary way between trustee and beneficiaries; the latter seek to assert a proprietary right.
The factual background
Seventeen plaintiffs as investors under a managed investment scheme seek access to documents containing confidential information in the hands of the defendant (“IOOF”) as the scheme trustee. The scheme is of a type giving rise to “prescribed interests” under pt4 div6 of the repealed Companies Code. The scheme (which in one form or another has been in force since about 1928) is subject to a deed which continues to have effect in accordance with the Corporations Law 1989 (Cth) s1454; under the earlier Companies Act (Cth) 1962 s76 the scheme was treated as an “investment contract”. In its various forms the legislation and supporting regulations impose extensive obligations upon the trustee and upon the scheme manager.
There are some 20,000 investors (or “covenant holders”) under the scheme which relates to the growing of radiata pine trees for timber and pulp. The scheme is one of long term investment and involves the growing and supervision of trees from seedling to maturity for upwards of 25 years with several harvests as the plantations are thinned and then clear felled. Therefore there is extensive forestry and accounting work to be managed. For the purposes of the present action it is common ground that the covenant holders are beneficiaries under a trust (or series of trusts) of which IOOF is currently the Trustee pursuant to the Trust Deed which regulates the scheme. SEAS Sapfor Forests (“The Forest Company”) is the scheme Manager and is a subsidiary of Auspine.
Two of the present plaintiffs (The Forest Company and Auspine) are defendants in the Management dispute which has been brought at the suit of the Trustee (IOOF) against the Scheme Manager (“The Forest Company”), Auspine and another associated company.
It may seem anomalous that the Scheme Manager is an investor in a scheme of which it has responsibilities as Manager but no issue has been raised in this behalf; I will assume that the Forest Company is entitled to the status of a covenant holder alongside the Forest Company’s position as Scheme Manager.
At preliminary hearings all plaintiffs as covenant holders sought to pursue a right of inspection, but an order was only sought on behalf of one plaintiff Mr AA Burdett (as representative of his fellow plaintiffs) when the point of law was argued before me on 4 and 5 November 1998. However, Mr Burdett was formerly the solicitor for the Auspine group during much of the time to which the Management Dispute relates and this point clearly emerged when (upon my enquiry) Mr Burdett filed an affidavit disclosing his position after the conclusion of the oral hearing. The parties are represented by different firms of solicitors in the present proceedings from those who are engaged in the Management Dispute. Therefore, it should not be expected that those responsible for the present proceedings would be on notice of the unique difficulty associated with Mr Burdett’s position. I brought the parties back for further hearing when I pointed out special difficulties which I perceived as being created by Mr Burdett’s former professional association with Auspine. The possibility that Mr Burdett might become a witness in the Management Dispute cannot be entirely discounted. Mr Burdett’s name does not appear on the list of proposed witnesses in that action and his name has not been mentioned in the course of that trial. Nevertheless, Mr Burdett’s close associations with the Forest Company at relevant times (coupled with the subject matter upon which he has advised the Auspine group) creates a climate for embarrassment; a potential witness should not be allowed access to the brief of counsel who eventually may be called upon to cross examine him. Despite Mr Burdett’s personal good standing as a practitioner of this Court, his former professional association with Auspine is sufficient to call in question whether he ought to have access to the IOOF brief irrespective of the position of his co-plaintiffs; that fact of course does not in any way reflect personally upon Mr Burdett who, perchance, may have to give evidence about events which at present he will have no reason to recall.
In view of the doubts which I expressed, the names of other individual plaintiffs - Mr Cram, Mr Ooi and Mrs Unger were successively put forward in the alternative as being respectively suitable to represent the plaintiffs for the purposes of viewing the relevant documents - but subject to undertakings as to confidentiality and as to restrictions upon the use to be made of the information. (These undertakings had previously been proffered on behalf of Mr Burdett). Essentially, the plaintiffs desire that one of their number be placed in the position of being able to obtain full information about the Management Dispute and to seek professional advice thereon.
No doubt, having taken advice, a resourceful covenant holder could take steps (whether by way of action or otherwise) which might call in question the actions of IOOF and the wisdom of those responsible for recommending the course upon which IOOF has embarked in the Management Dispute. Alternatively, an informed covenant holder might seek to persuade fellow covenant holders to put pressure on IOOF to negotiate a compromise when those in control of the litigation for IOOF may have decided that such a course was not in the best interests of IOOF (and the covenant holders). I do not underestimate the damaging course of action which a covenant holder - whether well meaning or mischievous - could take after inspection of the IOOF brief to counsel in the Management Dispute. Clearly there will be room for argument as to what course represents the best interests of over 20,000 covenant holders; a great deal is at risk - that fact is obvious. Only IOOF knows what cards the trustee’s counsel is holding; do the present plaintiffs or any of them have a right to see these cards?
(No criticism of the conduct of the Management Dispute is implied by these remarks. In the absence of any evidence of the plaintiffs’ underlying purpose in bringing the present claim, I only seek to recognise how vulnerable the Trustee might be if its brief to counsel were to be inspected by the plaintiffs or one of their number. It is only by way of example that I speculate as to what might happen and what the circumstances may be.)
The Trustee has made many documents available to the present plaintiffs or their representative, but has denied them access to counsel’s brief in the Management Dispute and to some communications between the Trustee and a group of investors who support the Trustee’s actions. (That group intervened by counsel in the present proceedings to express their views and, with my leave, have now withdrawn).
The Management dispute involves two actions in the Supreme Court which have been consolidated. In these actions the trustee is seeking an account (and other relief) from companies in the Auspine group - The Forest Company, SEAS Sapfor Harvesting and Auspine itself. The present plaintiffs (who include the Forest Company and Auspine in their individual capacities as investors in the scheme) seek (inter alia) access to:
(1)... witness statements, expert reports, legal advice instructions to legal representatives, assessments of prospect of success and other documents forming part of the trustee’s brief to counsel in the Management dispute and for which the trustee has legal professional privilege in relation thereto.
(2)... Communications between the Trustee and an association of investors - Covenant Investors Association (CIA) - being an unincorporated body formed to represent the interests of approximately 20,000 investors who are currently participants in the scheme.
......... (Emphasis added).
Although the plaintiffs complain as to the trustee’s refusal to provide this information, they do not otherwise allege any breach of duty by the trustee in the discharge of its responsibilities. If the bona fides of the trustee had been in issue then the case would involve different principles (see re Londonderry’s Settlement (1965) 1Ch at 938). As I have previously observed, the plaintiffs rely upon their status as beneficiaries but otherwise do not put forward any particular circumstances to support their argument.
The plaintiffs properly disclose associations with each other which, upon one view, might be seen as pointing towards sympathy for the Auspine group in the management dispute - two of the present plaintiffs are defendants in the Management dispute and various other of the present plaintiffs are present or past employees of Auspine (or of an associated company), spouses of employees of Auspine or in one case, a past director of that company. No specific association with Auspine has been shown in the case of Mrs Unger or Mr Ooi. Mr Cram ceased to be employed by Sapfor Timber Mills in 1980 after 16 years service. Messrs Burdett, Cram, Ooi and Mrs Unger have filed affidavits disclosing that they have expectations that Auspine will pay their costs of the present matter.
IOOF asserts that the plaintiff Auspine and its associated companies have brought the present proceedings for an improper purpose. Counsel for IOOF claimed before me that this improper purpose involves all seventeen plaintiffs. The particulars filed by IOOF asserts with respect to the relevant companies (and collectively referred to as “Auspine”) that:
“1..... Auspine are defendants in proceedings in the Supreme Court of South Australia numbered 480/93 and 1299/96 (collectively referred to as “the management dispute”) in which the defendant herein (“IOOF”) is the plaintiff.
2Auspine has instituted these proceedings for the purposes of:
2.1... deflecting IOOF from devoting an appropriate level of effort and resources to the management dispute;
2.2 obtaining information to be used in the management dispute which information would not otherwise be available to them by procedures which can be invoked in the management dispute.”
For reasons set out below I am unwilling to investigate these allegations. I will determine the point which I have identified (at the outset of these reasons) and the issue raised by these particulars of improper purpose will be reserved. My order determining the issue before me must be moulded to accommodate the rights of the parties to argue and call evidence upon the reserved issue if that should become necessary. However, as a result of the conclusion which I have reached upon the question of law, the reserved issue does not require a decision.
The Scheme of Investment

(a) The Trust Deed.

The investment scheme mentioned above was promoted to the public by the plaintiff Forest Company. All plaintiffs (including the Forest Company) are investors in the scheme and in this capacity are known as “Covenant Holders”. The scheme (which finds its origins in about 1928) has been constituted and regulated by a series of Deeds. It is arguable - at least for some purposes not now relevant - that there are a number of schemes which respectively may be identified by reference to a published deed and accompanying prospectus (upon which a number of individual investors have subscribed). The rights which the present plaintiffs seek to assert can be traced to two documents (amended from time to time) which (in a republished form) provide a convenient basis for argument. These documents provide the umbrella under which the various prospectuses have been issued and from which the plaintiffs claim that their rights flow.
The only document referred to in the course of argument before me was the Trust Deed in a form agreed (as a matter of convenience) for the purpose of argument. This document is an indenture made by the Forest Company and Farmers’ Co-operative Executors and Trustees Ltd (as the present Trustee IOOF was known when in 1964 it became associated with the scheme). The Trust Deed has been supplemented by another document called the Tripartite Agreement which is particularly concerned with the operational forestry aspects of the scheme and the manner of harvesting Pine Trees and commercially turning them to account. SEAS Sapfor Mills, The Forest Company and IOOF are parties to the Tripartite Agreement.

(b)The Trustee’s role

The recitals to the Trust Deed disclose that the Forest Company
“was formed for the purpose of acquiring lands and planting the same with pine trees and preserving the forests so planted until such time as the same should become marketable and for the purpose of acquiring the funds necessary for the carrying out of its purpose the Forest Company intends from time to time to issue prospectuses inviting the public to subscribe for and purchase the covenants referred to in such prospectuses on the terms and conditions set forth in any of such prospectuses and the covenants issued thereunder”
Paragraph 1 of the Trust Deed provides:
“THAT the Forest Company doth hereby appoint the Trustee and the Trustee doth hereby undertake covenant and agree to be and act as Trustee for the Covenantholders for the time being upon and subject to the trusts terms covenants and conditions hereinafter contained.”
Paragraph 2(a) of the Trust Deed provides:
“That the Forest Company will faithfully observe and perform all and singular the terms conditions agreements and obligations contained or implied in the said Covenants and upon the part of the Forest Company to be observed and performed.”
The Trust Deed imposes extensive obligations upon the Forest Company as Scheme Manager to tend and supervise the forestry operations and to account to the Trustee for the sale of timber subject to provision for expenses. The Forest Company is not liable to be removed as Manager of the Trust (Trust Deed par20B).
By par10A the Trustee is constituted Trustee of various funds and of muniments of title “in Trust for the covenant holders.”
The Trust Deed provides for a detailed system of periodic financial reporting by the Forest Company to the Trustee including (for example) quarterly reports as to:
“3(ca)(i)... whether any matters have arisen adversely affecting the interests of the holders of Covenants issued in accordance with the provisions contained in any prospectus filed by the Forest Company;
(ii)whether the Forest Company has observed and performed all the covenants and conditions binding on it pursuant to the terms of the said Covenants and the Trust Deed as amended from time to time:
(iii).. whether any event which is or should be known to the Forest Company has happened which has caused or could cause the said Covenants or any of them or any provision of the Trust Deed as amended from time to time to become enforceable by reason of any breach or default by the Forest Company;”
Paragraph 5 of the Trust Deed provides:
“THAT the Trustee shall be entitled for and on behalf of the Covenantholders to exercise in its own name all and singular the rights powers remedies and authorities of the Covenantholders against the Forest Company and particularly all remedies specified in Clauses 13 and 14 hereunder as being available to the Trustee upon default being made by the Forest Company in the observance and performance of all or any of its obligations herein or in the said Covenants contained or upon default being made by the Forest Company under the terms of any lease in which it is the Lessee.”
(Paragraphs 13 and 14 confer on the Trustee the right to appoint a Receiver and to exercise the powers of the Forest Company upon its default).
By par21A of the Trust Deed the Trustee covenants with the Forest Company that it will:
(a).... exercise all due diligence and vigilance in carrying out its functions and duties and in watching the rights and interests of the Covenantholders.”
(Emphasis added).

In my opinion for present purposes it is of the essence of the role of the Trustee that it should act as a watchdog or steward in the interests of investors and oversee the activities of the Forest Company.
By par12(c) the Forest Company and the Trustee agree to observe the terms of the Tripartite Agreement to which I have already referred.
By par25 of the Trust Deed Covenants may be issued (to investors) in the form set out in a Schedule to the Deed with such alterations as the Trustee may from time to time approve. For present purposes covenants may be regarded as being in more or less a common form containing provisions which include the following:
“This Covenant is issued subject to the provisions of a certain Indenture bearing date the sixth day of March 1964 as amended by two Indentures dated respectively the twenty-fourth day of September, 1964 and the nineteenth day of January, 1965 made between the Company of the one part and Farmers’ Co-operative Executors and Trustees Limited (Trustee for the Covenantholder) of the other part and of a Supplementary Indenture made between the same parties on the Fourteenth day of May 1965 - and subject to the terms (by which the Covenantholder agrees to be bound) of two Agreements bearing date the sixth day of March, 1964 and the Fourteenth day of May, 1965, and made between the Trustee for the Covenantholder of the first part the Company of the second part and Sapfor Timber Mills Limited (hereinafter referred to as “The Milling Company”) of the third part (hereinafter referred to as “the Tripartite Agreement”).”
“In case default shall be made by the Company in the performance of any or all of its obligations herein or in the Trust Deed made between the Company and Trustee for Covenantholders contained, it shall be lawful for the Trustee in the interest of the Covenantholders to exercise any or all of the powers provided for such purpose in the said Trust Deed.”
(It is evident from this quotation that the Trust Deed has a number of amendments; by virtue of the agreement between counsel, I am able to treat the Trust Deed in an agreed form (as already mentioned) as being the document upon which I may base my judgment).
The Trust Deed imposes upon the Forest Company a web of obligations to manage the scheme and to account to the Trustee. The Forest Company is liable to pay the Trustee’s remuneration and to pay the Trustee’s legal and travelling expenses and audit expenses.
Par 3(c) of the Trust Deed (subject to certain qualifications) provides that the Forest Company will:
“Indemnify and keep indemnified the Trustee and the Covenantholders from and against all and all manner of claims demands actions proceedings in respect of the tending supervision protection and preservation of the said land and trees and in respect of all such rent rates taxes charges outgoings and impositions and further amounts aforesaid.”
Paragraph 34 of the Trustee Deed provides:
“Notwithstanding any other provision of this deed (but without prejudice to the obligation of any Covenantholder to pay all monies payable by him under his Covenant) no Covenantholder shall by reason of holding a Covenant or by reason of the relationship thereby created with the Trustee or the Company be under any obligation personally to indemnify the Trustee or the Company or the creditor of either of them for any debt incurred by them or either of them in connection with the powers and obligations herein vested in or imposed upon them or either of them and the only rights (if any) of indemnity of such creditors shall be limited to having recourse to monies lawfully payable hereunder to the Trustee or the Company.”
The Trust Deed imposes extensive obligations upon the Forest Company to provide information to the Trustee which in turn has obligations to make regular reports to the Covenant Holders.
My overview of the Trust Deed (as now relevant) is that IOOF as Trustee has extensive obligations to receive periodic reports and to require an accounting from the Forest Company. Very large sums of money are involved. The Trustee has an obligation to be vigilant and to hold itself in readiness to enforce the terms of the Trust Deed and the accompanying Tripartite Agreement for the benefit of the Covenant Holders.
That obligation in some circumstances may require the Trustee to take proceedings as the Trustee asserts has become necessary in the Management Dispute.
The Management Dispute
The two consolidated actions (comprising the Management Dispute) are presently at trial before me. The principal hearing commenced on 14 September 1998 and, is not expected to conclude before March 1999. Senior and Junior counsel are appearing on either side together with supporting litigation teams. The costs of the hearing are obviously huge. The statement of claim covers 274 pages and the defence and reply are only marginally smaller. Experts’ reports of accountants, foresters and economists cover many thousands of pages. I expect to hear evidence concerning practices in the timber industry as well as evidence concerning the dealings between the Scheme Manager and Trustee and the method of accounting within the Auspine group.
For present purposes I observe that the management dispute is essentially an action for an account (with alternative claims for damages) against the Forest Company as scheme manager and its associated companies Auspine and SEAS Sapfor Harvesting (formerly Milling). However, there are other claims; for example the Tripartite Agreement provides a regulatory procedure whereby independent evaluators are required to fix timber price scales; the status of these scales and whether the evaluations have been made in accordance with the Tripartite Agreement are also in contention.
The Forest Company issued its annual report to covenant holders for the year ended 31 October 1997; that document includes the Trustee’s report to covenant holders which relevantly reads as follows:
“Legal Proceedings
The 1996 Trustee’s report to Covenantholders set out in detail the actions pending in the Supreme Court of South Australia against the Auspine Group. One action is against SEAS Sapfor Forests Pty Ltd, SEAS Sapfor Harvesting Pty Ltd and Auspine Ltd regarding maintenance beyond the covenant period and the second action issued in June 1996 is against SEAS Sapfor Forests Pty Ltd, SEAS Sapfor Harvesting Pty Ltd and Auspine Limited regarding the prices paid for timber, expense deductions from Covenantholders; timber proceeds and provision of information.
The Trustee sought arbitration in 1994 and 1995, as it was dissatisfied with the purported evaluations of the independent evaluator for the years 1993/1994 and 1994/95. The Trustee also expressed dissatisfaction with the purported evaluations for 1995/96, 1996/97 and 1997/98.
All parties to the actions have since agreed to a consolidation of the two actions (Maintenance Beyond covenant Period Action No. 480 of 1993 and Prices and Expenses Action No.1299 of 1996) and the arbitrations. A date for the trial to commence has been set for the 14 September 1998.
Trustee’s Reimbursement of Costs
The actions against the Auspine Group have been brought by the Trustee solely for the benefit and in the interests of the Covenantholders. The Trustee has incurred legal and other expenses of $646,566 during the year ended 31 October 1997 and a total of $1,555,761 since 1 October 1993 in carrying out its functions on behalf of the Covenantholders under the Trust Deed.
The Trustee obtained legal advice which confirmed its entitlement to exercise its right of indemnity against the Trust to recover amounts incurred. The Trustee has exercised its right of indemnity for legal and other expenses against Covenantholders funds held in trust. The costs were principally for legal, accounting and expert fees incurred in connection with the actions against the Auspine Group and partly in connection with the Trustee’s other duties under the Trust Deed. The amount of $1,555,761 has been apportioned over respective planting years on the basis that, the burden of such costs would be borne by those Covenantholders beneficiaries who would benefit from such expenditure.”
(The material which I have underlined in this quotation contains in a nutshell the elements upon which the plaintiffs as covenant holders now rely to argue an entitlement to inspect documents).
It is now unnecessary to further describe the issues in that action which is being hard fought.

4. The History of the Present Proceedings

The action was commenced by a summons dated 25 February 1998 seeking the appointment of an inspector to investigate the trusts (now in question) being administered by IOOF. Section 84C of the Trustee Act 1936 provides:
“(1).. The Supreme Court may, of its own motion, or on the application of any person who has, in the opinion of the Court, a proper interest in the matter, appoint an inspector to investigate the administration of any trust.”
The matter came before the Chief Justice who identified the real issues between the parties. In the course of a ruling (made available to the parties on 31 August 1998) the learned Chief Justice said:
“On 13 August the matter came on again. The parties had informed me that they wished me to determine whether the defendant could assert legal professional privilege as against the plaintiffs in relation to documents the subject of legal professional privilege in the management dispute. The defendant had been claiming that it could. I doubted the soundness of that contention. When the matter came on for hearing, the defendant seemed to me to have shifted its ground, but now to sounder ground.
The defendant’s submission was now not couched in terms of privilege. It was along the lines that the defendant had a duty to consider the interests of all beneficiaries, and a duty to protect the trust assets. Disclosing material that might go to the heart of its case in the management dispute, to persons who were defendants in that dispute, or who might act in the interests of those defendants, would be contrary to the interests of many other beneficiaries, and was likely to prejudice the value of the trust assets. This, I must say, is what I thought the real issue was.”
The Chief Justice put in place a procedural order which recognised that there was an over-riding assertion by the defendant (to which I have referred) that the action constituted an abuse of the Court’s process; the Chief Justice directed that the matter be again listed for hearing before a Judge. The matter was then listed before me at my request when I became aware incidentally of the existence and nature of this matter during the course of hearing the Management Dispute.
In view of the complexity of the Management Dispute and its accompanying procedure, I was concerned as to the legal implications arising from the fact that the parties to that dispute should also be parties to other litigation - the present dispute. I have foreseen the possibility that some decision in the present action might flow on in terms of the principles of issue estoppel so as to affect my decision in the Management Dispute. I had previously insisted that the two actions constituting the Management Dispute should be consolidated so as to ensure that the common questions arising therein should be disposed of concurrently. The consolidation involved a great deal of work for the parties and the benefits associated with that work were at risk of being lost if the parties were permitted to carry on aspects of their dispute otherwise than alongside the consolidated actions - presided over by one judge.
In my view there was the possibility of embarrassment in the trial of the Management Dispute if the same judge did not hear all related issues - involving the construction of the Trust Deed. In terms of doing justice in a consistent manner it appeared to me to be convenient that the various questions of law relating to the Trust Deed should be determined by me in the first instance.
I therefore made an order that an issue arising in the present action (and identified in par1 of these reasons) be argued before me. I briefly adjourned the hearing of the Management Dispute to enable this to occur.
There is one disadvantage in the procedure which I have adopted. The present defendant (IOOF) wishes to lead evidence (which is said to reflect upon the plaintiffs) in support of its abuse of process argument. Clearly it would be undesirable for me to deal with that aspect of the dispute as facts may emerge (so I am told by counsel) which might affect my ability to continue with the hearing of the Management Dispute. The abuse of process argument may involve the cross-examination of persons who are alleged to have close associations with Auspine.
In these circumstances I have selected the issue of law which I consider that I should hear and I have conducted that hearing in the presence of counsel in the Management Dispute who have been given an opportunity to be heard on limited questions. I have also drawn to the attention of counsel in the present case, those aspects of the Management Dispute as now relevant. In this way I have endeavoured to achieve some procedural order in the resolution of the various questions.
As I have already observed the abuse of process issue will be reserved for another day for hearing before someone other than myself.
Before embarking upon the principal hearing of this matter, I conducted a directions hearing in which I investigated the issues which might arise. I also satisfied myself that the relevant facts were not in dispute. With the advantage of the Chief Justice’s ruling - which effectively clears away some peripheral issues - I have been able to make my decision based upon undisputed facts.
I note the statement of Erle J in R v Higham (1857) 119 ER 1352 at 1355:
“On all trials much is taken by all parties as assumed, and only those facts really in dispute strictly proved. In such cases what is assumed is in proof.”

cited by Napier CJ in In re Robson (1952) SASR 101 at 105.

It has not been necessary for me to refer generally to the documents on the court file. I do, of course, have a background knowledge of the Management Dispute as recorded herein (as do counsel) and the hearing has been conducted upon the basis of that knowledge. Counsel have been required to fully argue the meaning of the Trust Deed (as if I had no familiarity therewith). However, I have been able more quickly and effectively to come to grips with the current problem aided by the knowledge which I have previously acquired of the Trust Deed and Tripartite Agreement.
Any remaining issue can be conveniently dealt with by a Master of the Court in the light of these reasons and the principles which I have discussed.
The plaintiffs’ application for appointment of an inspector under the Trustee Act depends to some extent upon the trustee’s justification for its denial of the access claimed by beneficiaries in respect of the confidential documents. I anticipate that the resolution of the present issue as to the plaintiffs’ questioned right may go a long way to disposing of the action.
Legal Principles
The statement of Lord Wrenbury in O’Rourke v Darbishire & Ors (1920) AC 581 at 626 is a convenient starting point:
“If the plaintiff is right in saying that he is a beneficiary, and if the documents are documents belonging to the executors as executors, he has a right to access to the documents which he desires to inspect upon what has been called in the judgments in this case a proprietary right. The beneficiary is entitled to see all 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. No question of professional privilege arises in such a case. Documents containing professional advice taken by the executors as trustees contain advice taken by trustees for their cestuis que trust, and the beneficiaries are entitled to see them because they are beneficiaries.”
A list of references to the citation with approval of Lord Wrenbury’s dictum appears in Breen v Williams (1995-1996) 186 CLR 7 at 89 per Dawson and Toohey JJ - especially footnotes 59 and 60. The decision was also applied by Gummow J in Re Simersall; Blackwell v Bray (1992) 35 FCR 584 in a review of general principle; this occurred with particular reference to the obligation of a trustee to account to beneficiaries for the trustee’s stewardship as a necessary incident of the obligation to hold and deal with the trust property for the benefit of the cestui que trust. His Honour treated the right of the beneficiary as being properly described as “proprietary in nature.” However in deference to the view of Hope JA in Wentworth v Montfort (1988) 15 NSWLR 348 at 356 Gummow J acknowledged that the trust records were not to be handed over to any beneficiary - and in that sense they were not the beneficiary’s property.
An early statement of principle is contained in Talbot v Marshfield (1865) 2 DR & SM 549 where Trustees took counsel’s opinion to guide them in their administration; they wished to know whether they were justified in making a discretionary advance. The trustees’ actions based on the advice was challenged and a further opinion was obtained after action brought. The Vice Chancellor said at 550:
“The first case and opinion, the production of which is sought, were respectively stated and taken by the Defendants to guide them in the exercise of a power delegated to them by the trusts of the will, and which, if exercised, would affect the interests of the other cestuis que trust. The opinion was taken before proceedings were commenced or threatened, and in relation to the trust. Under these circumstances it appears to me that all the cestuis que trust have a right to see that case and opinion. It was contended that it was not taken for the benefit of all the cestuis que trust; but all the cestuis que trust have an interest in the due administration of the trust, and in that sense it was for the benefit of all, as it was for the guidance of the trustees in their execution of their trust. Besides, if a trustee properly takes the opinion of counsel to guide him in the execution of the trust, he has a right to be paid the expense of so doing out of the trust estate; and that alone would give any cestuis que trust a right to see the case and opinion.
The other case and opinion, however, stands on a totally different footing. This was not to guide the trustees in the execution of their trust; but, after proceedings had been commenced against them, they took advice to know in what position they stood, and how they should defend themselves in the suit. It appears to me that the cestuis que trust have no right to see this case and opinion, unless they can make out that the trustees can charge the expense thereof on the trust funds.”
It is to be noted that this was a case in which discovery was sought by the plaintiff beneficiaries against the defendant trustee and the papers ordered to be produced came into existence ante litem motam. (Scott on Trusts (4th ed) par173 relies upon this citation as a statement of the general principle).
In re Londonderry’s Settlement (1965) 1 Ch 918 the English Court of Appeal reviewed generally (in the light of Lord Wrenbury’s statement) the right of a beneficiary to see documents held by trustees and relevant to the exercise of a discretion - including minutes of trustees’ meetings and correspondence between them. At 933 Harman LJ said:
“I would hold that even if documents of this type ought properly to be described as trust documents, they are protected for the special reason which protects the trustees’ deliberations on a discretionary matter from disclosure. If necessary, I hold that this principle overrides the ordinary rule.”

At 935 Danckwerts LJ said:
“Now as regards the letters written by individual beneficiaries, or other people for that matter, to the trustees, I think the right conclusion is that they are not really trust documents at all. But even if they be trust documents, it seems to me, in spite of the wide observations which were made by their lordships in the House of Lords and others, that does not really solve our problem. It seems to me there must be cases in which documents in the hands of trustees ought not to be disclosed to any of the beneficiaries who desire to see them....”
It seems to me that subject to any specific provision in a trust instrument the general right of a beneficiary to demand information and to see documents must be reconciled with other principles affecting the administration of a trust.
In my opinion if the immediate task with which the Trustee is charged by the Trust instrument requires confidentiality, then it is incompatible with the provision of the Trust for the beneficiary to be able to obtain that information.
In Re Fairbairn (1967) VR 633, Gillard J reviewed the authorities in circumstances where it was alleged that a beneficiary was engaged in a “foraging expedition” without any real objective apart from the hope of discovering some information which would form the foundation of an attack upon one or other of the trustees. Gillard J affirmed the right of the beneficiary in that case to inspect the books relating to the conduct and management of the deceased’s pastoral business. However His Honour at p638 recognised that there might be “certain circumstances” which would displace the beneficiary’s “prima facie right” of inspection.
The authorities cited in the argument of counsel in O’Rourke v Darbishire (1920) AC 581 at 590 - especially those collated in Seton’s ‘Judgments and Orders’ 7th ed Vol 1 93-94 - provide some insight into the attitude which the court might take where a beneficiary seeks access to confidential trust documents.
A group of cases (cited by Seton) deals with the application of s58(5) of the English Local Government Act 1894 which reads as follows:
“Every parochial elector of a parish in a rural district may at all reasonable times without payment inspect and take copies of and extract from all books accounts and documents belonging to and under the control of the district council of the district.”
Although these decisions simply raise questions of statutory construction, they have been argued and decided upon the analogy of trust principles. Seton recognises that reference to this line of cases is apt - but Seton’s references are in the context of discussion of the law of discovery. Daniell (Chancery Practice 8th ed at 624-625) recognises the concept of the “joint interest” of trustee and beneficiary in documents as the foundation of the beneficiary’s right to inspect. (see discussion in Ballard’s case below).
In R v Bradford on Avon Rural District Council (1908) 99 LT 89 the applicant sought to inspect a case for and opinion of counsel obtained by the District Council with regard to a right of way in respect of which the applicant was alleging a trespass by third parties over his lands. Sutton J disposed of the matter by reading down the language of the statute so as to confine it to a very limited class of documents. Darling J said-
“If [counsel’s] argument were adopted by us a district council would find itself in an impossible position. The argument is that parliament has said that any parochial elector has a right to see every scrap of writing in the possession of the council. If that is so, if the council, for example had litigation with some of their servants it would be possible, if this argument is right, for their servants to be put in possession of the case submitted to council and every document in the case, including the letters written by the solicitor, in case any parish elector could be found to go and ask to see the documents.”
Lord Alverstone CJ at p89 observed that the section of the Local Government Act gives a right to the parochial elector and that there would be many cases in which great injustice would be done if any person engaged in dispute or litigation with a public authority was entitled to inspect all documents simply because he or she was a ratepayer - as for instance reports or cases for opinion in respect of the dismissal of a servant. To the same effect was the decision in R v Godstone Rural Council (1911) 2 KB 465 (where the District Council was treated in argument as a trustee for its ratepayers). The cases appear to have proceeded in recognition of the practical necessity to restrict in some circumstances a generally expressed right of access to documents of a public authority.
I refer also to Bristol Corporation v Cox (1884) 26 ChD 678, (cited by Seton) having some resemblance to the present insofar as Auspine, the Forest Company and the Trustee are concerned. Mr Cox as President of the Law Society being faced with proceedings for an injunction to prevent him from issuing a circular critical of the council, sought to rely upon his status as a ratepayer to get access to certain of the Council’s documents. At 683 Pearson J said:
“But a curious and ingenious argument was used by Mr Ford. He says: Oh! But Mr Cox is not only an excellent President of the Incorporated Law Society but he is also a ratepayer of the city of Bristol, and being a ratepayer he has contributed towards paying for all those cases and opinions, and having done that the case comes within the authorities of those cases where trustees have taken counsel’s opinion at the expense of the trust estate and the cestuis que trust are entitled to see it. He says that the corporation are trustees for Mr Cox, that they have got these cases and opinions practically at the expense of Mr Cox, and Mr Cox is therefore entitled to see them. I think that if this was an action by Mr Cox as a ratepayer against the corporation of the city of Bristol with regard to some matter or other which related to the raising of the rates, or to the expenditure of the rates, it may be quite possible, and it is very probable, that Mr Cox would have a right to see them, but this is an action by the mayor, alderman, and burgesses of the city of Bristol, not as against Mr Cox in any way whatever as a ratepayer, but as a corporation really defending the interests of the ratepayers themselves against the Defendant, who they say is injuring those interests. That is a totally different case altogether, and I am of opinion that that argument cannot prevail.....”
(Emphasis added).
In Morris v Morris (1993) 9 WAR 150 Seaman J questioned the description of the beneficiary’s right as being based upon a proprietary interest in documents. His Honour (at 153) referred to HAJ Ford and WA Lee - Principles of the Law of Trusts (3rd ed) par936.1 - where the authors comment upon the question of proprietary right in this context:
“...The beneficiary’s rights to inspect trust documents are founded therefore not upon any equitable proprietary right which he or she may have in respect of those documents but upon the trustee’s fiduciary duty to keep the beneficiary informed and to render accounts:”
It appears that His Honour’s attention was not drawn to the decision in Hartigan (delivered only shortly before that in Morris). It is significant that Seaman J took the same view as did the Court of Appeal in New South Wales as to the principle which underpins a beneficiary’s rights of access to documents.
In Butt v Kelson (1952) Ch 197, Romer LJ at 205 noted (arguendo) the problems associated with the exploitation of a secret process in which a trustee was involved. However, that was in the context of a trustee (in that capacity) acting as a director of a company:
“...if the principle underlying this declaration were to be right then a beneficiary, who either was already, or was contemplating carrying on a rival business, can call upon the trustee directors to furnish him with information which might be very detrimental to the company.
...
I am not quite sure to what extent the judge intended the principle that a beneficiary can call upon a trustee director to furnish him with information and inspection to apply, whether it was intended to be limited to cases where there are no outside interests, in the sense that there are no interests apart from the trust interest, or whether it was intended to include cases (and indeed this is such a case) where although there are no outside interests in that sense nevertheless there are or may be conflicting interests as between the beneficiaries themselves. For myself, I think that if one accepts the principle at all, it is difficult to confine it within any properly definable limit and, in my judgment, it is a principle which it is dangerous to accept and which ought not to be accepted at all. It might, as I have indicated, result in very unfortunate consequences.”
(Emphasis added).
The regulation of a beneficiary’s right of access by reference to conflicting interests was developed in Ontario Attorney General v Stavro et al (1994) 119 DLR (4th) 750 where the approach taken by Romer LJ appears to have been taken up in the following passages - at 754 Lederman J said:
“...there is no need to protect the solicitor-client communication from disclosure to those very persons who are claiming under the estate. The communications remain privileged as against third parties who are strangers or are in conflict with the estate, but...not those who are claiming under the estate. And that is because the trustee and beneficiary have a joint interest in the advice as Phipson has suggested.”

and at 755:

“There may well be appropriate exceptions to this ‘joint interest’ rule as in the case of Re: Londonderry’s Settlement, where it was more important to preserve the confidentiality of deliberations with respect to the trustee’s exercise of discretion in deciding which beneficiaries were to take.” (ibid, 755).”
(Emphasis added).

However, Stavro itself was a case where the bona fides of the Trustees were under challenge.

In Hartigan Nominees v Rydge (1992) 29 NSWLR 405 at 421-2 Kirby P said:
“Much of the law on the subject of access to documents has conventionally been expressed in terms of the “proprietary interest” in the document of the party seeking access to it. Thus, it has been held that a cestui que trust has a “proprietary right” to seek all documents relating to the trust: see O’Rourke v Darbishire (at 601, 603). This approach is unsatisfactory. Access should not be limited to documents in which a proprietary right may be established. Such rights may be sufficient; but they are not necessary to a right of access which the courts will enforce to uphold the cestui que trust’s entitlement to a reasonable assurance of the manifest integrity of the administration of the trust by the trustees. I agree with Professor HAJ Ford’s comment, in his book (with Mr WA Lee) Principles of the Law of Trusts, 2nd ed (1990) Sydney, Law Book Co, at 425, that the equation of rights of inspection of trust documents with the beneficiaries’ equitable rights of property in the trust assets “gives rise to far more problems than it solves” (at 425):
......... “...The legal title and rights to possession are in the trustees: all the beneficiary has are equitable rights against the trustees...The beneficiary’s rights to inspect trust documents are founded therefore not upon any equitable proprietary right which he or she may have in respect of those documents but upon the trustee’s fiduciary duty to keep the beneficiary informed and to render accounts. It is the extent of that duty that is in issue. The equation of the right to inspect trust documents with the beneficiary’s equitable proprietary rights gives rise to unnecessary and undesirable consequences. It results in the drawing of virtually incomprehensible distinctions between documents which are trust documents and those which are not; it casts doubts upon the rights of beneficiaries who cannot claim to have an equitable proprietary interest in the trust assets, such as the beneficiaries of discretionary trusts; and it may give trustees too great a degree of protection in the case of documents, artificially classified as not being trust documents, and beneficiaries too great a right to inspect the activities of trustees in the case of documents which are, equally artificially, classified as trust documents.”
(Emphasis added).
In Hartigan Mahoney JA at 433-4 said:
“It is possible to envisage documents communicated to a trustee which, though the property of the trust, are confidential and for that reason should not be disclosed to beneficiaries. The settlor may communicate confidential information about a beneficiary as a reason for not exercising a discretionary power in his favour; a beneficiary may communicate to the trustee information as to his assets which he desires to keep confidential; and information may be communicated in the context of personal family affairs the disclosure of which would be abrasive or distressing. As the judgments in the Londonderry case indicate, that is a proper reason for not requiring disclosure of documents or information which otherwise should be disclosed to a beneficiary.
I do not mean by this that documents or information falling generally within other aspects of the law of confidentiality will be exempt from such disclosure. What is here in question is a document disclosed in the context of the administration of the trust which has been disclosed upon the basis of, or which is of its nature that it requires, non-disclosure to beneficiaries.”
(Emphasis added).
In the same case at 443-4 Sheller JA said:
“There are accordingly difficulties in applying the proprietary analysis as a basis for their right to inspect documents: Ford and Lee (at 425); compare Spellson v George (1987) 11 NSWLR 300 at 315-316. The documents in Re Fairbairn, deceased were the books of account and records of the deceased together with all receipts documents vouchers and other writings necessary to enable entries and records to be verified. His Honour said (at 639, line 44):
......... “Thirdly, the beneficiaries have a proprietary interest in the documents. Indeed, as I pointed out earlier, as chattels they form part of the estate of the deceased, the legal estate of which was bequeathed to the trustees to be held by them on the specified trusts and under one of those trusts, the plaintiff has a clear beneficial interest.”
In my opinion, in determining the nature of documents which the trustee is bound to disclose, an inquiry as to whether or not a beneficiary or in this case the respondent has what can be described as a proprietary interest is, if not a false, an unhelpful trail.”
Sheller JA in the course of his reasons recognised confidentiality of information as being a condition which may be effectively imposed upon the Trustee by the trust instrument so as to justify non-disclosure to beneficiaries (see at 445-6).
I am of the opinion that the views expressed in Hartigan and in Morris reflect the principle now to be applied. When so expressed, it is not difficult to recognise the need to protect confidentiality of documents as giving rise to special circumstances justifying refusal of access to trust documents even by those who may have an interest therein of the type discussed in Hartigan.
The argument advanced on behalf of the present plaintiffs relies essentially upon the statement of Lord Wrenbury. However, that statement is of a general nature and does not address the exceptional cases. The statement of O’Bryan J in Re Pennell (1945) VLR 302 at 306 leaves room for special circumstances to operate. His Honour said:
“The right of a beneficiary to an account would be a most ineffectual thing if he had no right to go behind the account rendered to him by his trustee to the books and vouchers and other documents which are the real evidence of the truth and accuracy of the accounts. And the right to inspect such documents would in most cases be practically useless unless it carried with it an incidental right to have the documents examined on his behalf by an agent appointed by him for the purpose. It would be proper to limit the selection of the agent to one to whom no reasonable objection could be taken by the trustees or managers or other beneficiaries. It may even be proper to require the agent to give an undertaking not to make use of any information acquired in the course of the examination except for the purpose of confidentially advising his principal. Within those limits it would require a strong case to refuse a beneficiary inspection of all documents by himself or his agent.....”
(Emphasis added).
A question may arise as to the rights of the individual beneficiaries to obtain information. It would be possible to construct an argument that where there are an extremely large number of beneficiaries and the documents are voluminous (as in the present case) an intolerable burden would be cast upon the trustee if the beneficiaries were each entitled to access of the Trustee’s archives. I do not need to decide this question because the confidential nature of the documents now in question and the task assigned to the trustee create a combination of circumstances which take this case outside the ordinary. However, it is to be observed that the Trust Deed contains a provision which regulates the calling of meetings of covenant holders; par22E of the trust deed authorises such a meeting to give a direction to the trustee.
It seems to me to be arguable that in a trust of the present nature, it is incumbent upon the beneficiaries to act reasonably - perhaps being prepared to act collectively in taking steps to appoint a representative to investigate a matter of concern - along the lines suggested by O’Bryan J. In making these observations I do not suggest that a minority group (such as the present plaintiffs) - nor indeed individual beneficiaries - may not have rights if they act reasonably in the circumstances.
The beneficiaries cannot be entitled (even by inadvertence) to oppress the trustee and to undermine the trustee’s administration and to prejudice the successful performance of the Trustee’s duties; nevertheless the beneficiaries have a right to know what is the trust property and how it is being administered. The right of the beneficiary to know and the need for the trustee in the interests of the trust estate to protect commercial confidentiality may have to be reconciled by recognising the case as special so as to deny the beneficiary access in the absence of reasons.
Conclusion
The beneficiary’s prima facie right of inspection does not stand alone. That right must be measured alongside the whole bundle of rights and obligations created by the trust instrument. This process is the balancing exercise referred to by the Full Queensland Supreme Court in Tierney v King (1983) 2 Qd R 580 at 583 and by Salmon LJ (as the “reconciliation” of rules) in Londonderry’s Settlement (1965) 1 Ch at 936-7. In the present case I am prepared to decide the matter upon the basis of a necessity (created by the Trustee’s duty as steward or watchdog) as giving rise to a special circumstance. The Trustee cannot effectively carry out its allotted task under the Trust Deed if, at the suit of some of the 20 000 covenant holders it must (even with the safeguard of undertakings) disclose its hand with respect to the litigation concerning the Management Dispute. This is a powerful reason for recognising the case as an exception to the general rule. I have already observed how a covenant holder in possession of confidential information could do irreparable harm to the Trustee’s case in the Management Dispute. In my opinion it is essential to the proper discharge of the Trustee’s function that it be entitled to maintain confidentiality with respect to counsel’s brief - at least for the time being. The need for confidentiality may extend beyond the brief. The trustee has seen fit to have some communications with a group of beneficiaries. I do not know the substance of these communications and I have not heard argument thereon.

A trustee need not necessarily have to disclose to all beneficiaries the trustee’s communications with a particular beneficiary (see Hartigan at 433 and re Londonderry (1965) Ch at 934); if IOOF has been using the views of the Covenant Investor Association as a sounding board then confidentiality may well extend to those communications if the papers are to be treated as trust documents. I only mention this point because it should not be thought that the material before me is the only material in the Trustee’s files which may be kept from the eyes of the covenant holders. In the present case a Master can examine the documents and hear argument. If necessary, the alleged abuse of process can then be investigated.
It has been argued for the plaintiffs that the trustee in seeking (in the Management Dispute) to vindicate a position as trustee is in a different position from a trustee who is defending the trustee’s own administration at the suit of a beneficiary. I agree that the situations are different. The trustee defending hostile litigation is entitled to normal litigation privilege. In the present case the rights of the beneficiaries are suspended to the extent necessary to facilitate the proper discharge of the trustee’s function as a litigant in carrying through its stewardship.
It was argued on behalf of the plaintiffs that clear words would be required in the Trust Deed in order to deprive the plaintiffs of the fundamental right to obtain information from the Trustee. In my opinion there is a practical necessity (to which I have already referred in discussing principle) which attaches to the trustee an entitlement to carry out its watchdog role without having to show its hand to the beneficiaries in the detail now sought.
In my opinion at least for the duration of the Management Dispute special circumstances exist as a result whereof a covenant holder is not entitled to exercise a right to inspect the confidential documents now in question in the hands of the Trustee. It is inimical to the purposes of the Trust that beneficiaries should have an entitlement “as of course” to inspect the documents now in question with the possibility that the Trustee’s position in the Management action may be undermined. Nothing in these reasons will preclude a beneficiary from exercising rights which are supported by adequate reasons beyond the bare assertion of status as a beneficiary.
I will hear counsel as to the form of the declaration and as to questions of costs.

[1998] SASC 7000

17 December 1998