Szental v Szental
[2001] VSC 42
•27 February 2001
SUPREME COURT OF VICTORIA
COMMERCIAL AND EQUITY DIVISION Not Restricted
No. 6303 of 2000
| MARY JULIA SZENTAL | Plaintiff |
| v | |
| PETER DAVID SZENTAL (who is sued as executor of the will of HELENA FINKEL, deceased) | Defendant |
No. 6608 of 2000
| MARY JULIA SZENTAL | Plaintiff |
| v | |
| TZEDEK NOMINEES PTY LTD | First Defendant |
| TEDMAL ADMINISTRATORS PTY LTD | Second Defendant |
| MATIDA NOMINEES PTY LTD | Third Defendant |
| PETER DAVID SZENTAL | Fourth Defendant |
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JUDGE: | Balmford, J. | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 12 February 2001 | |
DATE OF JUDGMENT: | 27 February 2001 | |
CASE MAY BE CITED AS: | Szental v Szental | |
MEDIA NEUTRAL CITATION: | [2001] VSC 42 | |
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PRACTICE AND PROCEDURE – Appeal against an order for discovery – Plaintiff and Defendant are beneficiaries under the will of the deceased, probate of which was granted to the Defendant – Whether the categories of documents listed in the schedule to the order for discovery are unduly narrow – Whether the order should be limited to discovery of documents in the possession, power or control of the Defendant in his capacity as the executor of the estate – Whether the Plaintiff should be required to give an undertaking as to confidentiality in relation to any discovered documents.
PRACTICE AND PROCEDURE – Appeal against an order for discovery – Pre-trial discovery sought from Fourthnamed Defendant to identify trusts in which the Plaintiff may have an interest of some kind as a beneficiary, with a view to joining those trusts in the substantive proceeding – Whether the potential beneficiary of a discretionary trust has a prima facie right to inspect trust documents.
Administration and Probate Act 1958; s.91(4).
Buchanan-Michaelson v Rubenstein [1965] 1 Ch 258.
Jacobson v Dafna Nominees Pty Ltd [1999] VSC 529.
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APPEARANCES: | Counsel | Solicitors |
For the Plaintiff | Mr JL Sher QC with Ms RA Lewitan QC and Mr DJ Batt | Keith R Cameron |
| For the Defendants Peter David Szental and Matida Nominees Pty Ltd | Mr CM Scerri QC and Dr KL Emerton | Arnold Bloch Leibler |
HER HONOUR:
Introduction
These two appeals arise out of the same circumstances. They were by agreement heard together and an order was made that documents filed in either appeal be admissible in the other. Each is an appeal against an order for discovery made by Master Wheeler, both orders apparently made on 13 September 2000 and corrected on 19 September 2000. By virtue of Rule 77.05 of the Supreme Court (General Civil Procedure) Rules 1996 (“the Rules”) an appeal from an order made by a Master is to be by re-hearing de novo of the application to the Master. Proceeding number 6303 (“the Part 4 proceeding”), is a claim under Part 4 of the Administration and Probate Act 1958 (“the Act”). In proceeding number 6608 (“the trusts proceeding”) the plaintiff seeks documents and an accounting from the defendants pursuant to Order 54 of the Rules.
The defendant in the Part 4 proceeding, who is the fourth defendant in the trusts proceeding (“the defendant”) is the brother of the plaintiff, and they are the only children of Helena Finkel, who died in 1999. Probate of the will of Helena Finkel was granted to the defendant, the executor named in the will, on 14 February 2000. Both the plaintiff and the defendant are beneficiaries under the will. The defendant is a director of each of the first, second and third defendants in the trusts proceeding (“the three companies”). He holds shares in two of those companies. The search of Tedmal Administrators Pty Ltd dated 13 November 2000 which is before the Court shows Helena Finkel, rather than the defendant, as a shareholder. That search may by now be out of date.
The Part 4 proceeding
Introduction
It is convenient to deal first with the Part 4 proceeding whereby the plaintiff seeks provision out of the estate of Helena Finkel (“the estate”). The order of the Master which is under appeal reads as follows:
OTHER MATTERS
Upon the Plaintiff by its [sic] counsel undertaking on her behalf and of [sic] her Solicitors, to the Court and to the Defendant that they will not show or communicate the contents of any document discovered by the Defendant pursuant to Order 1 of these orders to any person, other than, for the purposes of this proceeding, to each other and any other professional legal advisers, professional financial advisers and other expert advisers retained by the Plaintiff in this proceeding:
THE COURT ORDERS THAT:
1.The Defendant file and serve an affidavit of the categories of documents set out in the schedule annexed hereto on or before 13 October 2000.
[Orders 2-7 not presently relevant]
SCHEDULE OF CATEGORIES OF DOCUMENTS TO BE DISCOVERED BY THE DEFENDANT
1.All of the documents in the possession, power or control of the Defendant in his capacity as executor of [the estate] as follows:
1.1the financial records of the estate, including:
1.1.1invoices, receipts, orders for payment of money, bills of exchange, cheques, promissory notes and vouchers;
1.1.2documents of prime entry; and
1.1.3working papers and other documents for the financial statements;
1.2.the financial statements for each year of the administration of the estate, including:
1.2.1profit or loss statement for each year;
1.2.2the balance sheet as at the end of the year; and
1.2.3a statement of cash flows for [the] year;
1.3the loan agreement and documents relating to the loan referred to in clause 4 of the will of the deceased (“the deceased’s will”);
1.4the trust deed (and any amendments thereto) for the Helena Finkel Family Holding Trust referred to in clause 6 of the deceased’s will;
1.5the trust deed (and any amendment thereto) for the Helena Szental Consolidated Trust referred to in clause 8 of the deceased’s will;
2.In relation to [the three companies],
all of the documents in the possession, power or control of the Defendant in his capacity as executor of [the estate] as follows:
(i)documents relating to the assets and liabilities of each company (including any registers of assets);
(ii)documents relating to the value of such assets and liabilities; and
(iii)trust deeds (including any amendments thereto) of any trusts of which the company is or was trustee.
Relevance
The plaintiff submits first, that the categories of documents listed in the schedule to the Master’s order are unduly narrow, and that the order should comprise the documents set out in a revised schedule, which reads as follows:
1.The financial records of [the estate] including:
1.11.1.1 invoices, receipts, orders for payment of money, bills of exchange, cheques, promissory notes and vouchers;
1.1.2documents of prime entry; and
1.1.3working papers and other documents for the financial statements;
1.2the financial statements for each year of the administration of the estate, including:
1.2.1profit or loss statement for each year;
1.2.2the balance sheet as at the end of the year; and
1.2.3a statement of cash flows for [the] year;
1.3documents relating to the assets and liabilities, or the value thereof, now or previously comprising the estate;
1.4the loan agreement and documents relating to the loan referred to in clause 4 of the will of the deceased (“the deceased’s will”);
1.5the trust deed for the Helena Finkel Family Holding Trust;
1.6the trust deed for the Helena Szental Consolidated Trust;
1.7the trust deed for the H Finkel Development Trust;
1.8the trust deed for the Arthur Reicher Settlement Trust.
2.Documents relating to any trust of which
(a)the plaintiff; and/or
(b)the defendant,
is or has been, or is or has been eligible to become, a beneficiary (whether fixed, discretionary or otherwise), including:
2.1profit and loss statements, balance sheets and statements of cash flows;
2.2documents relating to the assets and liabilities of the assets and liabilities [sic] now or previously comprising the fund of the trust, or to the value thereof, or to the transfer or disbursement of assets from the trust or other dealings in the assets;
2.3audit reports;
2.4the trust deed and any amendments thereto;
2.5agreements and instruments executed under the trust deed or in respect of the trust by the trustee for the time being;
2.6documents relating to distributions made or to be made by the trust; and
2.7documents relating to the establishment of any sub-trust or related trust.
3.In relation to each of [the three companies] :
3.1profit and loss statement and balance sheet for each year (since incorporation);
3.2documents relating to the company’s assets and liabilities of each company including registers of assets, or relating to the value thereof or dealings therein;
3.3trust deeds (including any amendments thereto) of any trusts of which the company is or was trustee.
4.Documents relating to the financial position, current and past, of the plaintiff or defendant, including their actual or contingent assets, liabilities and income.
It is not in issue that the affairs of the Szental family have been for many years administered through a number of interlocking companies and trusts. The plaintiff deposes to having been told by her uncle that “the value of the family empire which had been controlled by my late mother until her death” was some 25 million dollars, and that statement is not challenged. The net assets of the estate are shown in the Inventory of Assets and Liabilities as just over 1.5 million dollars. The deceased bequeathed to the defendant shares in the three companies. The plaintiff deposes that that bequest gave the defendant control over some of the companies and trusts in question, and this is not denied by the defendant in his answering affidavit. Later in the same affidavit the plaintiff deposes that her understanding is that the effect of the will is to give the defendant full control of the family wealth. The answering affidavit, in referring to that statement, sets out the effect of a specific provision in the will providing for an income for the plaintiff, but makes no response to the general proposition. The plaintiff deposes in a number of places as to her lack of knowledge of the companies and trusts.
The relevance of the material sought to be discovered depends on section 91(4) of the Act, which provides, so far as relevant:
91.Power of the Court to make maintenance order
(1)Despite anything in this Act to the contrary, the Court may order that provision be made out of the estate of a deceased person for the proper maintenance and support of a person for whom the deceased had responsibility to make provision.
(2)The Court must not make an order under sub-section (1) in favour of a person unless -
(a)that person has applied for the order; or
(b)another person has applied for the order on behalf of that person.
(3)The Court must not make an order under sub-section (1) in favour of a person unless the Court is of the opinion that the distribution of the estate of the deceased person effected by -
(a)his or her will (if any); or
(b)the operation of the provisions of Part I, Division 6; or
(c)both the will and the operation of the provisions –
does not make adequate provision for the proper maintenance
and support of the person.
(4)The Court in determining -
(a)whether or not the deceased had responsibility to make provision for a person; and
(b)whether or not the distribution of the estate of the deceased person as effected by -
(i)the deceased's will; or
(ii)the operation of the provisions of Part I, Division 6; or
(iii)both the will and the operation of the provisions -
makes adequate provision for the proper maintenance and support of the person; and
(c)the amount of provision (if any) which the Court may order for the person; and
(d)any other matter related to an application for an order under sub-section (1) -
must have regard to –
.. .
(f)any obligations or responsibilities of the deceased person to the applicant, any other applicant and the beneficiaries of the estate;
(g)the size and nature of the estate of the deceased person and any charges and liabilities to which the estate is subject;
(h)the financial resources (including earning capacity) and the financial needs of the applicant, of any other applicant and of any beneficiary of the estate at the time of the hearing and for the foreseeable future;
.. .
Mr Scerri, for the defendant, submitted that the additional material described in the revised schedule of documents submitted by the plaintiff had no relevance to any issue in the Part 4 proceeding. This was because it was not the defendant’s case in that proceeding that were the plaintiff to succeed the defendant would be placed in any financial difficulty. That being so, discovery of material relating to the defendant’s personal financial affairs was not relevant and should not be authorised. In support of that contention Mr Scerri relied on Anderson v Teboneras [1990] VR 527 and Grey v Harrison [1997] 2 VR 359. However, those cases were decided before the introduction of section 91 of the Act in its present form by section 55 of the Wills Act 1997, and in particular of section 91(4)(f), (g) and (h). The effect of those provisions is to require the Court in the Part 4 proceeding to have regard to the financial resources and the financial needs of the plaintiff and the defendant. Accordingly, it cannot be said that documents relating to those matters are irrelevant to the Part 4 proceeding.
Capacity
The order under appeal is limited to documents in the possession, power or control of the defendant “in his capacity as executor of [the estate]”, that being the capacity in which he is sued. The second submission of the plaintiff is that the order should not be restricted to discovery of documents in the possession, power or control of the defendant in that capacity. In a letter of 15 September 2000 the solicitors for the defendant stated that at the hearing before the Master, counsel for the defendant had informed the Court that the defendant did not have in his possession, custody or power, in his capacity as executor of the estate, any documents belonging to the three defendant companies. They added: “Kindly note that we have written this letter for the purposes of avoiding any future disputation concerning this issue”.
Rule 16.04 of Chapter II of the Rules, relating to proceedings under Part 4 of the Act, provides so far as relevant:
16.04 Parties to the Application
(1)Each personal representative shall be a defendant unless he is a plaintiff.
. . .
(3)No other person shall be a defendant to the application in the first instance.
The defendant is the sole defendant to the Part 4 proceeding, and is sued in his capacity as executor of the will of Helena Finkel.
On this issue, Mr Sher, for the plaintiff, relied in particular on Buchanan-Michaelson v Rubenstein [1965] 1 Ch 258 in which Pennycuick J ordered a defendant sued as a personal representative to provide discovery of documents which had earlier been in her possession as personal representative but had been transferred to her in her individual capacity. His Lordship referred to the Rule corresponding to Rule 5.06, requiring that where a party is sued in a representative capacity, the originating process shall be endorsed with a statement showing that capacity. He continued at 263 (with paragraphing introduced):
That is undoubtedly the practice laid down by [the Rule] and it is what one would expect, because where parties occupy a representative capacity their rights against, and liabilities to, another party are conditioned by that capacity.
But I do not think it follows that, where parties are sued in a representative capacity, for all the purposes of the action, including discovery, they must be treated as though there were a cleavage of personality between them in their representative capacity and them in their individual capacity, as if they were two distinct persons. The fact is that the party to the action is a human person – I am not talking here of corporations – he is one person, and although the claim must be made against him in one or other capacity, or both, he is not, so to speak, two distinct persons, one of whom is not before the court at all.
In relation to discovery the contention advanced by Mr Francis would lead to the most extraordinary results. It would follow, for example, that if documents came into the possession of persons as executors and they then handed over those documents to themselves in their capacity as trustees of the same will, the moment they have done so they would be exempt from discovery in an action in which they were sued as personal representatives. The same position would arise, as it does in the present case, where the executors hand over documents which come to them in that capacity to one of themselves only, either as beneficiaries or on some particular trust, it matters not. Again, apparently, it would mean that executors were not bound to disclose documents handed over to them by the testator while he was still alive, with a view to their administration of his estate.
It appears from the report that an appeal from that decision was allowed on the ground , not canvassed before Pennycuick J, that the plaintiff’s application had been premature.
Mr Scerri submitted that that decision had no relevance to the present case. Documents in the possession, power or control of the defendant in his personal capacity were not relevant to the Part 4 proceeding, and there was no ground on which they could be ordered to be discovered. However, for the reason set out in paragraph 7 above that submission is not sustainable.
Mr Scerri submitted further that Rule 16.04 requires that in the first instance, only the personal representative is to be joined, but that it would be possible to join the defendant in another capacity at a later stage if that were appropriate. However, what is sought in this application is discovery of documents by the defendant in his personal capacity, those documents being relevant by virtue of the provisions of section 91(4) of the Act. Nothing is sought which would justify making the defendant in his personal capacity a party to the action.
It would, of course, be possible for the plaintiff to seek an order under Rule 32.07 for discovery from the defendant in his personal capacity, as a non-party, on the ground that he is likely to have in his possession documents relating to the requirements of section 91(4). Rule 32.07 provides that such an order may be made “on the application of any party to a proceeding”, and Rule 32.08 requires such an application to be made by summons. No such application has been made here.
However, by virtue of Rule 1.14, the Court may exercise any power under the Rules of its own motion. My view is that the decision of Pennycuick J in Buchanan-Michaelson v Rubenstein is founded on common sense, and that I should follow that decision in the matter here before me. Should I be wrong in that view, I am satisfied that this is an appropriate case for the exercise, on the Court’s own motion, of the power conferred upon the Court to make an order for discovery from the defendant in his personal capacity, he being, in that capacity, not a party to this appeal. There is extensive material before me relevant to the appeal. The true position is that the application for discovery is strongly resisted by the defendant in his personal capacity as well as in his capacity as executor. That being so, material has been put before me which is ample to enable me to consider and determine whether such an order should be made. I see no reason why further time and costs should be expended in the making of a separate application.
Time
Mr Scerri referred to the modern trend to limit discovery so as to prevent it becoming a weapon of oppression and harassment in litigation. He pointed out that the revised schedule submitted by the plaintiff was unlimited as to time. The validity of that submission was effectively accepted by Mr Sher, for the plaintiff, and I consider it appropriate that some limitation in time be imposed. The seven year period adopted for income taxation purposes seems reasonable in all the circumstances of this case.
Confidentiality
The third submission of the plaintiff is that there is no evidence which warrants the requirement that she or her solicitors give the confidentiality undertaking required by the Master. As Mr Scerri pointed out, such undertakings are common, particularly in commercial litigation.
It is not in issue that the plaintiff is a member of the Church of Scientology (“the Church”). The defendant deposes that he believes that, unless the plaintiff and her legal and financial advisers consent to keep confidential any documents produced to her, the documents are likely to be provided to the Church and retained by it for its own purposes; the Church will endeavour to make use of information gleaned from those documents to increase its wealth; and the Church might use the information to the detriment of the Szental family companies and trusts.
Mr Sher referred to the implied undertaking by a party to litigation not to use any discovered document or information derived therefrom otherwise than for the purposes of the proceeding without the consent of the owner of the document or the leave of the court (Home Office v Harman [1982] 1 All ER 532). In his submission, breach of that undertaking would leave a party open to sanctions for contempt of court, which were potentially more severe than the sanctions for breach of a contractual undertaking such as was envisaged. However, the undertaking presently contained in the order of the Master is an undertaking to the Court, not merely to the defendant, and breach of that undertaking would be a contempt and would leave the party concerned open to those same sanctions.
Mr Scerri submitted that a disclosure to the Church might be made for the purposes of the proceeding. Such a disclosure would not be a breach of the implied undertaking. I accept that such a disclosure is logically possible, without attempting to envisage circumstances in which the necessity for it might arise. The question then is, whether it is appropriate to require the express undertaking contained in the Master’s order, which would inhibit the plaintiff from making a disclosure for the purposes of the proceeding, should it become necessary or desirable for her to do so.
I find it difficult to see why the plaintiff should be inhibited in that way for the reason that the defendant disapproves of the Church. There is no evidence suggesting that the Church is an illegal organisation. Many organisations receive funds from their adherents or supporters, and many organisations are concerned to increase their wealth. The defendant does not explain in what way he believes that the Church would use the documents to the detriment of the companies and trusts. I consider it appropriate that the order not be made subject to the giving of the proposed undertaking as to confidentiality by the plaintiff or by her solicitors.
The trusts proceeding
Introduction
The plaintiff’s summons dated 24 August 2000 in proceeding number 6608 seeks pre-trial discovery from the fourth defendant under Rules 32.03 and 32.04. Her object, as indicated by her counsel, is to identify those of the trusts referred to in paragraph 5 above in which she thinks that she may have an interest of some kind as a beneficiary, with a view to joining those trusts in the substantive proceeding, which seeks documents and an accounting from the three companies and the defendant.
The Order of the Master which is under appeal in this matter reads:
OTHER MATTERS
1.Note that where in these orders the word “beneficiary” is used it does not refer to the mere object of a discretionary power.
2.Upon the Plaintiff by her Counsel undertaking on her behalf and of [sic] her Solicitors, to the Court and to the Fourthnamed Defendant that they will not show or communicate the contents of any document discovered by the Fourthnamed Defendant pursuant to order 1 of these orders to any person, other than, for the purposes of this proceeding, to each other and any other professional legal advisers, professional financial advisers and other expert advisers retained by the Plaintiff in this proceeding.
THE COURT ORDERS THAT:
1.On or before 13 October 2000 the Fourthnamed Defendant file and serve an affidavit of all documents which are in his possession custody on [sic] power relating to the description or identity of any trustee or trustees of any trust or trusts of which the Plaintiff is a beneficiary.
[Orders 2-4 not presently relevant]
Beneficiary
The plaintiff appeals first against the limitation imposed by the Note in paragraph 1 under Other Matters that “where in these orders the word ‘beneficiary’ is used it does not refer to the mere object of a discretionary power”. The defendant swore an affidavit of discovery, in response to the Master’s order, on 13 October 2000. Mr Scerri indicated that because of a perceived ambiguity in the order of the Master some of the trusts in respect of which discovery had been given were in fact discretionary trusts, where the plaintiff was no more than the object of a discretionary power. However, Mr Sher submitted that this was not so; and that submission is consistent with the description of the trusts in question appearing in paragraph 5 of the affidavit. The material before me does not enable me to resolve this difference and it is not necessary for me to do so. If Mr Scerri is correct, there may be no more material to be discovered if I order the removal of the limitation. That is no reason not to make the order.
Mr Sher submitted further that the effect of the limitation was that the decision as to the status of the plaintiff in respect of any given trust, and thus as to her entitlement to discovery in relation to that trust, was effectively to be made by the solicitors for the defendant, and that this was inappropriate. An order not subject to the limitation would enable the documents in question to be available for scrutiny by both sides.
In Jacobson v Dafna Nominees Pty Ltd [1999] VSC 529 Ashley J examined a number of authorities on the question as to whether the potential beneficiary of a discretionary trust had a prima facie right to inspect trust documents. His Honour at paragraphs [92]-[97] found that there was authority that at least some potential beneficiaries of discretionary trusts had the right , generally, to be informed, at their own expense, of the contents of trust documents, although it could not be said that such a potential beneficiary had any equitable proprietary right in the documents. The rationale for the right to be informed was the fiduciary duty of a trustee to keep beneficiaries informed and to render accounts. I would, with respect, adopt his Honour’s view. I note that in the application before me what is sought is simply discovery of documents “relating to the description or identity of any trustee or trustees of” any relevant trusts.
I am satisfied on the material before me that there is, as Mr Sher submitted, an arguable case that the plaintiff is a beneficiary, whether primary or otherwise, of a number of trusts administered by a number of corporations. In all the circumstances of this case I see no reason to deny to the plaintiff discovery of documents which will merely enable her to join defendants to this proceeding.
Confidentiality
The plaintiff also appeals against paragraph 2 under “Other Matters” in the order of the Master, which is in effectively the same terms as the corresponding provision in the order made in the Part 4 proceeding, requiring an undertaking by the plaintiff and her solicitors as to confidentiality of any document discovered under that order. The considerations applying to the Part 4 proceeding are equally applicable to the trusts proceeding. For the reasons set out above, I consider it appropriate that the order not be made subject to the giving of the proposed undertaking as to confidentiality by the plaintiff or by her solicitors.
The affidavit of discovery
Mr Scerri pointed out that the affidavit of discovery sworn by the defendant on 13 October 2000 was made on the basis of the Master’s order and was accordingly subject to the undertaking as to confidentiality. In view of my decision set out in the proceeding paragraph, this is not a matter for concern.
Time
Mr Scerri submitted that the Order of the Master, like that in the Part 4 proceeding, was unlimited as to time. However, that submission appears to me to be incorrect. The Order relates only to trusts “of which the plaintiff is a beneficiary” and thus must speak only at the date when the order was made, that is 19 September 2000.
Conclusion
The Orders under appeal will be set aside and orders consistent with these reasons will be substituted. Draft orders are attached, and I suggest that the matter be adjourned to enable submissions, or preferably agreement by counsel, as to the dates for filing and service and for inspection, and on the question of costs.
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