Vernon v Sixty Third Octex Pty Ltd
[2024] VSC 599
•26 September 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY AND PROBATE LIST
S ECI 2023 03173
BETWEEN:
| VALENTINE SHRAGA VERNON & ORS (according to the attached Schedule) | Plaintiffs |
| v | |
| SIXTY THIRD OCTEX PTY LTD (ACN 006 176 334) & ANOR (according to the attached Schedule) | Defendants |
---
JUDGE: | Irving AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 18 July 2024 |
DATE OF JUDGMENT: | 26 September 2024 |
CASE MAY BE CITED AS: | Vernon v Sixty Third Octex Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2024] VSC 599 |
---
PRACTICE AND PROCEDURE — Pleadings — Plaintiffs’ application to amend statement of claim, joinder and particular discovery — Rule 9.06 and r 29.08 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) — Plaintiffs’ claim that trust deed varied without acting in good faith, upon a real and genuine consideration; and in accordance with, and taking into account, the purpose for which the discretion to vary trust deed was conferred— Joinder of sole director and secretary of trust — Application granted in part.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr D McAloon of counsel | B2B Lawyers |
| For the Defendants | Mr I Upjohn KC with Mr D Sanders of counsel | Webb Korfiatis Family Law |
TABLE OF CONTENTS
Introduction................................................................................................................................... 1
Material relied upon..................................................................................................................... 2
The amendment and joinder applications................................................................................. 2
The discovery application.......................................................................................................... 16
Conclusion.................................................................................................................................... 32
HIS HONOUR:
Introduction
The plaintiffs were previously specified as the beneficiaries of two trusts, the Raoul Vernon Family Trust (RV Family Trust) and the Vernons Property Trust (Property Trust). The defendants are the respective trustees of those trusts. Ms Nunziatina Russo is the sole director of the defendants and sole appointor of each trust.
On or around 10 March 2022, while the defendant trustees were under the control of Raoul Vernon (now deceased), the trust deeds governing the operation of both the RV Family Trust and the Property Trust were purportedly varied to remove the plaintiffs as beneficiaries and to replace the plaintiffs and some other beneficiaries with Ms Russo and her children.
In this proceeding the plaintiffs allege that in executing the variation deeds the defendant trustees acted in breach of their duties as trustees by failing to:
(a) act in good faith;
(b) act upon a real and genuine consideration of the plaintiffs’ circumstances or needs; and
(c) take proper account of the purpose for which discretion was conferred upon the defendant trustees.
On 15 March 2024 the plaintiffs filed a summons seeking orders:
(a) granting leave to the plaintiffs to file and serve an amended statement of claim substantially in the form exhibited to the affidavit of Matthew Dominic Sweeney sworn 14 March 2024;
(b) joining Nunziatina Russo to the proceeding as the third defendant; and
(c) for particular discovery under r 29.08 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (Rules).
For the reasons that follow, I have decided to:
(a) grant the plaintiff’s leave to file and serve an amended statement of claim in the form exhibited to the affidavit of Matthew Dominic Sweeney sworn on 14 March 2024 but with the amendments limited to those in paragraphs 15 and 29 and the particulars to paragraphs 21 and 36;
(b) order that the defendants provide discovery of the third, fourth and fifth categories of documents sought by the plaintiffs, but with the reference to ‘tax invoices provided by the first plaintiff on behalf of his business to Raoul Vernon’ deleted; and
(c) otherwise dismiss the plaintiffs’ summons filed 15 March 2024.
Material relied upon
The plaintiffs’ summons is supported by:
(a) the affidavit of Matthew Dominic Sweeney sworn 14 March 2024; and
(b) a written outline of submissions filed 6 May 2024.
The defendants oppose any order for the joinder of Ms Russo or for particular discovery. They also oppose the plaintiffs’ proposed amendments to their statement of claim that relate to the plaintiffs’ proposed claim against Ms Russo. The defendants rely on:
(a) the affidavit of Dimitrios Korfiatis sworn 30 April 2024; and
(b) a written outline of submissions filed 14 May 2024.
The amendment and joinder applications
The plaintiffs seek leave to amend their statement of claim to include their claim against Ms Russo and to supplement the particulars of the existing claim by reference to documents obtained via discovery. In order to understand the plaintiffs’ application it is useful to summarise their statement of claim (SOC).
The first section of the SOC identifies the parties.
The first plaintiff is the son of the deceased and Suzanne Rose Vernon, and was at the time of the settlement of the RV Family Trust a specified beneficiary of that trust. At the time of the settlement of the Property Trust, the first plaintiff was a member of the ‘Discretionary Class’ of beneficiaries of that Trust.
The second, third and fourth plaintiffs are respectively the daughters and son of the first plaintiff. At the time of their births they were general beneficiaries of the RV Family Trust and members of the ‘Discretionary Class’ of beneficiaries of the Property Trust.
The first defendant has been the corporate trustee of the RV Family Trust since 25 July 1983. The deceased was the sole director of the first defendant from 11 April 2003 to 23 January 2023. From 23 January 2023 Ms Russo has been the sole director and secretary of the first defendant.
The second defendant has been the corporate trustee of the Property Trust since 9 April 2014. The plaintiffs plead that the deceased was the sole director of the second defendant from 9 April 2014 to 22 November 2022.[1] Ms Russo has been the sole director and secretary of the second defendant since 23 January 2023.
[1]Raoul Vernon was the director from 23.01.2014-23.01.2023. He had co-directors during parts of his tenure - Stuart Styles was a director from 23.01.2014-29.06.2016 and Tom Kotsimbos was a director it appears for one day being from 23.01.2014-23.01.2014.
The next section of the SOC deals with the RV Family Trust. The plaintiffs plead that the corporate trustee’s administration of the RV Family Trust is governed by the terms of a Trust Deed executed on 25 July 1983 by Peter Stawski, in his capacity as settlor of the RV Family Trust, and the corporate trustee. The object of the RV Family Trust is to make provision for the ‘Specified Beneficiaries’, being the children of the deceased and Suzanne Rose Vernon.
The plaintiffs plead their right as beneficiaries of the RV Family Trust to its due administration. They then plead the obligation of the first defendant, when exercising discretion in its capacity as corporate trustee, to act:
(a) in good faith;
(b) upon a real and genuine consideration; and
(c) in accordance with, and taking into account, the purpose for which the discretion was conferred.
At paragraph 12 of the SOC the plaintiffs expand upon the obligation of the first defendant to act upon a real and genuine consideration. According to the plaintiffs’ pleading, this obligation includes an obligation to inform itself about the differing circumstances, needs and desires of the beneficiaries of the RV Family Trust, particularly those beneficiaries that may be affected by a proposed exercise of discretion by the first defendant.
At paragraph 13 the plaintiffs plead that the purpose for which the discretion was conferred on the first defendant by the RV Family Trust Deed was to make provision for the ‘Specified Beneficiaries’, being the children of the deceased and Suzanne Rose Vernon.
The next section of the SOC is entitled, ‘Purported variation of R V Family Trust Deed’. Paragraph 14 pleads that on 10 March 2022 the first defendant and the deceased purported to vary the terms of the RV Family Trust Deed by executing a Deed of Variation of Trust Deed (RV Family Trust 2022 Variation Deed). Paragraph 15 of the SOC sets out the relevant variations to the Trust Deed purportedly effected by the RV Family Trust 2022 Variation Deed:
(a) substituting the wording in the Schedule to the RV Family Trust Deed under the heading ‘SPECIFIED BENEFICIARIES’ with the words, ‘RAOUL VERNON, NUNZIATINA RUSSO (also known as TINA RUSSO), JULIA LOUISE HALASEH RUSSO and SARAH MARIE HALASEH RUSSO’ (clause 1 of the RV Family Trust 2022 Variation Deed); and
(b) adding an additional sub-clause (ff) to clause 1(b)(A) on pages 3 and 4 of the RV Family Trust Deed of the ‘EXCLUDED CLASS’, as follows, ‘JOEL GREY VERNON, VALENATINE SHAGRA VERNON and their spouses, children and grandchildren’ (clause 4 of the RV Family Trust 2022 Variation Deed).
The plaintiffs’ current application seeks to insert paragraph 15(c) into the SOC in the following terms:
(c)substituting the wording in the Schedule to the Family Trust Deed under the heading “APPOINTOR” with the words, “RAOUL VERNON and NUNZIATINA RUSSO jointly or the survivor and upon the death of both of them, JULIA LOUISE HALASEH RUSSO and SARAH MARIE HALLASEH RUSSO jointly or the survivor” (clause 3 of the RV Family 2022 Variation Deed.
Paragraph 16 of the SOC pleads the effect of the purported amendments to be:
(a) removing the plaintiffs as beneficiaries of the RV Family trust;
(b) excluding the plaintiffs from the class of persons being beneficiaries of the RV Family Trust; and
(c) replacing the plaintiffs (and other beneficiaries of the RV Family Trust) with persons that are not the children of the deceased and Suzanne Rose Vernon (nor the spouses or children of the children of the deceased and Suzanne Rose Vernon).
Paragraph 17 of the SOC pleads that at the time of executing the RV Family Trust 2022 Variation Deed, the first defendant did not inform itself about the differing circumstances, needs and desires of the plaintiffs, as beneficiaries of the RV Family Trust. The plaintiffs provided the following particulars to this allegation:
Particulars
The circumstances of the plaintiffs as at 10 March 2022 relevantly included the following:
·Valentine had four dependants (his wife and three children) and was self-employed, operating a small business that was adversely affected by the COVID-19 pandemic and the related measures imposed to limit the spread of that disease.
·Milla’s quality of life was affected by reason of Milla having Down Syndrome, which condition required that she be provided with medical, developmental, educational and emotional support (including attendance, with an adult carer, at up to eleven allied health appointments per week).
·Milla had undergone significant spinal surgery less than twelve months previously (in July 2021), resulting in number hospital [sic] stays during the ensuing 8-month period and dependence upon others for self-care.
·The purchase of the plaintiffs’ residence had been largely funded by the borrowing of funds.
On 31 May 2023 and 9 June 2023 the plaintiffs wrote to the first defendant seeking an explanation as to how the RV Family Trust 2022 Variation Deed had been entered into in good faith and after giving real and genuine consideration to the purpose of the RV Family Trust and the interests of the plaintiffs as beneficiaries (paragraphs 18 and 19 of the SOC). The first defendant did not respond to these requests (paragraph 20).
Paragraph 21 of the SOC pleads that in executing the RV Family Trust 2022 Variation Deed, the first defendant exercised discretion and, in doing so breached its duties as trustee by failing to act in good faith, upon a real and genuine consideration of the plaintiff’s circumstances or needs or in accordance with the purpose for which the discretion was conferred on the first defendant, being to make provision for the ‘Specified Beneficiaries’.
The plaintiff’s application seeks to insert the following particulars to paragraph 21 of the SOC:
Particulars
That Sixty Third Octex exercised its discretion in bad faith, without a real and genuine consideration of the plaintiffs’ circumstances or needs and/or without taking proper account of the purpose for which the discretion was conferred on Sixty Third Octex is evident from the following:
(a) The matters set out at paragraphs 16 and 17 above.
(b)As was recorded in a letter from Rotman & Morris Solicitors to Raoul dated 14 January 2022, the instructions provided by Raoul (the then sole director of Sixty Third Octex) to Rotman & Morris Solicitors in the period prior to the execution of the RV Family 2022 Variation Deed were that Raoul’s “primary consideration” was to minimise Raoul’s personal estate and make various changes to Raoul’s “companies and family trust so as to provide primarily for Tina and her family and to minimise assets passing to [Raoul’s] two sons” (Primary Purpose).
(c)The Primary Purpose was referred to in a letter from Rotman & Morris Solicitors to Theresa Sgambaro, in which it was stated that Raoul’s intention was to “endeavour to minimize the size of his personal estate as the lower the value of Raoul’s estate, the lower magnitude of any claims that might be made by aggrieved beneficiaries under Raoul’s will”.
(d)The Primary Purpose was inconsistent with Sixty Third Octex (as trustee of the R V Family Trust) making provision for the “Specified Beneficiaries” of the R V Family Trust.
(e)That the preparation and execution of the RV Family 2022 Variation Deed was directed to the Primary Purpose was confirmed in a file note prepared by Rotman & Morris Solicitors on 27 January 2022, which recorded that, “We are to change the specified beneficiaries so as not only to include Tina [Russo] and her two daughters but also to specifically exclude Joel and Valentine”.
Paragraph 22 of the SOC pleads the plaintiffs entitlement to the avoidance of the RV Family Trust 2022 Variation Deed and the removal of the first defendant as trustee.
The next section of the SOC deals with the Property Trust. It pleads that the second defendant’s administration of the Property Trust is governed by the terms of a Deed of Trust executed by Theresa Ann Sgambaro (in her capacity as settlor of the Property Trust) and by the second defendant as trustee (paragraph 23).
Paragraph 24 pleads the plaintiffs’ right of due administration of the Property Trust. The obligations of the second defendant in exercising its discretion as trustee are pleaded at paragraph 25. The pleaded obligations of the second defendant are to act in good faith, upon a real and genuine consideration, and in accordance with the purpose for which the discretion was conferred. The plaintiff’s plead, at paragraph 26, that the second defendant’s obligations to act upon genuine consideration included an obligation to inform itself about the differing circumstances, needs and desires of the beneficiaries of the Property Trust.
The purpose for which the discretion was conferred on the second defendant by the Property Trust Deed was to protect and advance the interests of the beneficiaries of the Property Trust (paragraph 27 of the SOC).
The plaintiffs plead that on 10 March 2022 the second defendant and the deceased purported to vary the terms of the Property Trust Deed by executing a Deed of Variation (Property Trust 2022 Variation Deed) (paragraph 28). Paragraph 29 pleads the effect of the purported variation, including:
(a)substituting the wording in the Schedule to the Property Trust Deed under the heading “CORPUS BENEFICIARIES” with the words “RAOUL VERNON, NUNZIATINA RUSSO, JULIA LOUISE HALASEH RUSSO and SARAH MARIE HALASEH RUSSO” (clause 2 of the Property Trust 2022 Variation Deed); and
(b)substituting the wording in the Schedule to the Property Trust Deed under the heading “SPECIFIED BENEFICIARIES” with the words “RAOUL VERNON, NUNZIATINA RUSSO, JULIA LOUISE HALASEH RUSSO and SARAH MARIE HALASEH RUSSO” (clause 3 of the Property Trust 2022 Variation Deed).
The plaintiffs seek to insert paragraph 29(c) of the proposed amended statement of claim as follows:
(c)substituting the wording in the Schedule to the Property Trust Deed under the heading “APPOINTOR” with the words, “RAOUL VERNON and NUNZIATINA RUSSO (also known as TINA RUSSO) jointly and upon the death of both of them, JULIA LOUISE HALASEH RUSSO and SARAH MARIE HALLASEH RUSSO jointly or the survivor” (clause 1 of the Property Trust 2022 Variation Deed).
The plaintiffs then plead the Property Trust 2022 Variation Deed excluded the first plaintiff, his brother, their spouses, children and grandchildren (paragraph 30). The effect of the purported amendments to the Property Trust Deed are set out at paragraph 31 of the SOC in identical terms to the pleaded effect of the purported amendments to the RV Family Trust Deed. Paragraph 32 pleads that the second defendant did not, at the time of executing the Property Trust 2022 Variation Deed, inform itself of the differing circumstances, needs and desires of the plaintiffs as beneficiaries of the Property Trust. The particulars to this paragraph are in identical terms to the particulars pleaded to paragraph 17 of the SOC.
The plaintiffs plead their request to the second defendant for an explanation of how the Property Trust 2022 Variation Deed had been entered into in good faith and after giving genuine consideration to the purpose of the Property Trust and to the interests of beneficiaries (paragraphs 33 and 34). These allegations are, in substance, identical to the plaintiffs’ pleading in relation to the RV Family Trust at paragraphs 18 and 19 of the SOC. The plaintiffs plead the second defendant’s failure to provide a response at paragraph 35.
Paragraph 36 of the SOC pleads the second defendant’s breach of its duties as trustee of the Property Trust by failing to act in good faith, upon a genuine consideration of the plaintiff’s circumstances and needs, or in accordance with the purpose for which the discretion was conferred on the second defendant. The plaintiffs seek to insert particulars to this allegation which are in substance identical to the particulars sought to be inserted at paragraph 21. Paragraph 37 pleads the plaintiffs’ entitlement to relief including the avoidance of the Property Trust 2022 Variation Deed and removal of the second defendant as trustee.
The plaintiffs seek to insert the following allegations against Ms Russo into the SOC.
38.Clause 23 of the R V Family Trust Deed provides that the appointor shall be entitled by instrument in writing at any time and from time to time to remove any trustee of the RV Family Trust and to appoint a new trustee in place of any trustee who is removed.
39.Consequent upon the death of Raoul, if the purported amendments to the RV Family Trust Deed by the RV Family 2022 Variation Deed are effective, Russo:
(a) is the sole appointor under the RV Family Trust Deed;
(b)is the sole director of Sixty Third Octex, the trustee of the RV Family Trust Deed;
(c) is a specified beneficiary of the RV Family Trust; and
(d)as appointor under the RV Family Trust Deed, is entitled to remove Sixty Third Octex as trustee of the RV Family Trust and replace Sixty Third Octex with a new trustee of the RV Family Trust.
40.Clause 17 of the Property Trust Deed provides that the appointor of the Property Trust may revoke the appointment of any trustee of the Property Trust or may appoint a new trustee or trustees.
41.Consequent upon the death of Raoul, if the purported amendments to the Property Trust Deed by the Property Trust 2022 Variation Deed are effective, Russo:
(a) is the sole appointor under the Property Trust Deed;
(b)is the sole director of Meshug, the trustee of the Property Trust Deed;
(c) is a specified beneficiary of the Property Trust; and
(d)as appointor under the Property Trust Deed, may remove Meshug as trustee of the Property Trust and replace Meshug with a new trustee of the Property Trust.
42. The relief sought by the plaintiffs in this proceeding includes orders:
(a) removing Sixty Third Octex as trustee of the RV Family Trust;
(b) removing Meshug as trustee of the Property Trust; and
(c)appointing replacement trustees to the RV Family Trust and the Property Trust.
43. On 12 February 2024, the plaintiffs requested that Russo undertake:
(a)pending the hearing and determination of this proceeding, not to take any step to replace either or both of Sixty Third Octex as trustee of the RV Family Trust or Meshug as trustee of the Property Trust;
(b)to be bound, in her capacity as appointor of each of the RV Family Trust and the Property Trust, by any orders made in this proceeding; and
(c)not to exercise any power or appointment in respect of either the RV Family Trust and the Property Trust to remove or replace any trustee of the RV Family Trust or the Property Trust appointed by the court.
(Requested undertakings).
PARTICULARS
The Requested Undertakings were sought in a letter sent by the plaintiffs’ solicitors (B2B Lawyers) to the defendants’ solicitors (Webb Korfiatis Family Law) dated 12 February 2024.
44.Russo has, in the period since 12 February 2024, failed to provide the Requested Undertakings.
Relevantly, the plaintiffs’ SOC seeks the following relief:
A.A declaration that the variations purportedly made to the R V Family Trust Deed by the execution of the RV Family 2022 Variation Deed are ineffective.
B.Alternatively to A, an order that the exercise of discretion by Sixty Third Octex to execute the RV Family 2022 Variation Deed be set aside and the RV Family 2022 Variation Deed avoided.
C.An order for an account of all dealings, in the period since the execution of the RV Family 2022 Variation Deed, with the property of the RV Family Trust.
D.An order removing Sixty Third Octex as trustee of the RV Family Trust and an order pursuant to s 48 of the Trustee Act 1958 (Vic) appointing a replacement trustee to the RV Family Trust.
E.A declaration that the Property Trust 2022 Variation Deed is and was ineffective.
F.Alternatively to E, an order that the exercise of discretion by Meshug to execute the Property Trust 2022 Variation Deed be set aside and the Property Trust 2022 Variation Deed avoided.
G.An order for an account for all dealings, in the period since the execution of the Property Trust 2022 Variation Deed, with the property of the Property Trust.
H.An order removing Meshug as trustee of the Property Trust and an order pursuant to s 48 of the Trustee Act 1958 (Vic) appointing a replacement trustee to the Property Trust.
The plaintiffs’ seek to amend the SOC to include the following relief against Ms Russo:
I. An order restraining Russo, until further order, from:
(a) removing Sixty Third Octex as trustee of the R V Family Trust;
(b)replacing Sixty Third Octex as the trustee of the R V Family Trust;
(c)removing or replacing any trustee appointed to the R V Family Trust pursuant to an order made in this proceeding;
(d) removing Meshug as trustee of the Property Trust;
(e) replacing Meshug as trustee of the Property Trust;
(g)removing or replacing any trustee appointed to the Property Trust pursuant to an order made in this proceeding.
The plaintiffs’ request that Ms Russo provide undertakings, referred to in the plaintiffs’ proposed paragraph 43, requires some elaboration. Matthew Sweeney, solicitor for the plaintiffs, affirmed an affidavit in the proceeding in which he deposed:
(a) On 17 November 2023 he wrote to the defendants’ solicitors (on the understanding that they also acted for Ms Russo) seeking that Ms Russo undertake, in her capacity as appointor of the RV Family Trust and the Property Trust, to abide by the ‘orders made in the proceeding’ and specifically undertake not to exercise any power of appointment to remove or replace any trustees appointed by the Court;
(b) On 1 February 2024, having not received a response, Mr Sweeney again wrote to the defendants’ solicitor requesting a response to his letter of 17 November 2023;
(c) On 7 February 2024 Mr Sweeney received a response from the defendants’ solicitors stating that Ms Russo would not provide the requested undertakings;
(d) On 12 February 2024 Mr Sweeney wrote to the defendants’ solicitors requesting an explanation for Ms Russo’s refusal to provide the undertakings and repeating the request that Ms Russo provide the undertakings and an additional undertaking not to take any step to replace the trustees pending the hearing and determination of this proceeding;
(e) On 22 February 2024 Mr Sweeney received a response from the defendants’ solicitors advising that Ms Russo ‘will not undertake any action to frustrate or avoid any Orders the Court may make in the proceeding’;
(f) On 23 February 2024 Mr Sweeney wrote again to the defendants’ solicitors stating that their response was inadequate and enclosing a proposed amended statement of claim, requesting that undertakings be provided as set out in the proposed pleading;
(g) Mr Sweeney had not, as at 14 March 2024, received any further response from the defendants’ solicitors.
During the course of the hearing, the plaintiffs’ counsel provided the Court with a copy of the defendants’ solicitors’ letter to Mr Sweeney dated 22 February 2024. The substance of that letter states:
Respectfully, it is impossible to respond to your client’s requests which seek to draw assumptions from potential future actions by Ms Russo. The Undertakings sought therein are not Undertakings in any meaningful sense.
Nonetheless, in an endeavour to assuage your client, and in the event that your clients are successful but somehow fail to seek appropriate Consequential Orders in the proceeding, we are instructed to advise that Ms Russo will not undertake any action to frustrate or avoid any Orders the Court may make in the proceeding.
The plaintiffs submitted that in this proceeding they seek orders for the removal of the defendants as trustees and the appointment of replacement trustees. Mr Sweeney deposed that the plaintiffs are concerned that Ms Russo has the power to remove and replace any trustee appointed by the Court to the trusts.
The plaintiffs seek Ms Russo’s joinder to seek relief against her in her capacity as appointor. In the plaintiffs’ proposed amended statement of claim, the plaintiffs seek an order restraining Ms Russo from removing or replacing the trustees of the RV Family Trust or the Property Trust or removing or replacing any trustee appointed to either of those trusts by the Court. The plaintiffs submitted that accordingly, Ms Russo is a person whose presence before the Court is necessary to ensure that all questions in the proceeding are effectually and completely determined within the meaning of r 9.06(b)(i). They also submitted that Ms Russo is a person between whom and any party to the proceeding there may exist a question arising out of, or relating to, or connected with, any claim in the proceeding which it is just and convenient to determine as between that person and that party as well as between the parties to the proceeding, within the meaning of r 9.06(b)(ii).
Rule 9.06 of the Rules provides:
At any stage of a proceeding the Court may order that —
…
(b) any of the following persons be added as a party—
(i)a person who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all questions in the proceeding are effectually and completely determined and adjudicated upon; or
(ii)a person between whom and any party to the proceeding there may exist a question arising out of, or relating to, or connected with, any claim in the proceeding which it is just and convenient to determine as between that person and that party as well as between the parties to the proceeding;
I am not satisfied that Ms Russo is a person falling within the meaning of r 9.06(b)(i) or (ii). Accordingly, I have decided to dismiss the plaintiffs’ application that Ms Russo be joined to the proceeding. I have formed this view for the following reasons. First, Ms Russo’s position as appointor of both the RV Family Trust and the Property Trust was purported to be effected by the RV Family 2022 Variation Deed and the Property Trust 2022 Variation Deed. The primary relief sought by the plaintiffs is that the Court declare those variation deeds ineffective, or in the alternative order that they are avoided. If successful in achieving that relief, a necessary result would be that Ms Russo would no longer be the appointor of either Trust and could not remove or replace any new, Court ordered, replacement corporate trustee of either Trust. If unsuccessful, there would be no basis for the plaintiffs to restrain the lawful exercise of the powers of the appointor of the Trusts.
Second, as the sole director of the corporate trustees, Ms Russo must be aware of the details of the plaintiffs’ SOC and the relief the plaintiffs seek. Notwithstanding this, Ms Russo, in her capacity as appointor of the trusts, has not sought to be joined to the proceeding. None of the plaintiffs’ allegations regarding the validity of the defendants’ exercise of their discretion to vary the trust deeds involves Ms Russo. While Ms Russo may well be affected by the outcome of the proceeding, her presence before the Court is not necessary to determine the validity of the variation deeds.
Third, the plaintiffs’ original SOC did not plead against Ms Russo. Rather the plaintiffs have sought to amend their SOC to plead a case against Ms Russo in order to found their application for her joinder. In substance the plaintiffs’ real proposed allegation against Ms Russo is that she has refused to provide the undertakings sought by the plaintiffs. While refusing to provide the undertakings sought, Ms Russo has, through the defendants’ solicitor, advised that she will not undertake any action to frustrate or avoid any order the Court may make in the proceeding. I understand this to mean that Mr Russo will not seek to remove or replace the current trustees of the Trusts pending the hearing and determination of this proceeding. It appears to me that this preserves the status quo and is the limit of what Ms Russo, as the current appointor, could responsibly undertake.
There is no question arising out of, or relating to, or connected with, any claim in the proceeding which it is just and convenient to determine as between the plaintiffs and Ms Russo. If the plaintiffs’ are successful in the proceeding Ms Russo’s powers as appointor of the Trusts will end. If Ms Russo seeks to frustrate or avoid any orders that may be made by the Court, there are likely to be legal avenues available to the plaintiffs at that time. So much was conceded by the defendants. The question whether Ms Russo will frustrate or avoid future orders is not a genuine current question in the proceeding which is just and convenient to determine.
Fourth, I am not satisfied that there is or may be a question arising from any claim in the proceeding which it is just and convenient to determine as between Ms Russo and the plaintiffs as well as between the plaintiffs and defendants. The sole question raised by the plaintiffs’ proposed claims against Ms Russo are her failure to agree to the undertakings sought by the plaintiffs. As counsel for the plaintiffs conceded during the course of the hearing, had Ms Russo given the undertakings sought, the plaintiffs would not consider Ms Russo’s joinder necessary. In my view Ms Russo has agreed not to frustrate or avoid any order made by the Court in this proceeding. Other than Ms Russo’s refusal to give the undertaking in the form demanded by the plaintiffs, there is no pleading that suggests that Ms Russo intends to frustrate the Court’s hearing or determination of the proceeding. The fact that Ms Russo, as appointor, has powers which, if she chose to exercise them in a particular way, could frustrate the proceeding, does not, of itself, raise a question which it is just and reasonable to determine as between Ms Russo and the plaintiffs.
The defendants did not oppose the plaintiffs’ proposed amendments to add the particulars to paragraphs 21 and 36 of the SOC. In my view it would be appropriate for the Court to allow these amendments and the proposed amendments to paragraphs 15 and 29 to include subparagraph (c) to each. These subparagraphs make clear that one effect of the variation deeds was to change the appointors in the Trust Deeds. Accordingly, I will grant the plaintiffs leave to file an amended SOC limited to the amendments to paragraphs 15 and 29 and the particulars to paragraphs 21 and 36.
The discovery application
The plaintiffs sought an order that the defendants discover the following categories of documents:
(a) documents evidencing the financial position of the RV Family Trust in the period from 14 January 2022 to 10 March 2022 (Relevant Period), including financial statements, any other documents recording the assets and liabilities of the RV Family Trust and documents recording the value of the units in the RV Unit Trust during the Relevant Period (including financial statements prepared for the RV Unit Trust and documents recording the value of shares in Vernons Private Pty Ltd, including financial statements for that company and any other documents recording that company’s assets and liabilities);
(b) documents evidencing the financial position of the Vernons Property Trust during the Relevant Period, including financial statements and other documents recording the Property Trust’s assets and liabilities;
(c) documents evidencing the net value of the assets of Raoul Vernon during the Relevant Period that would form part of the deceased’s estate the subject of Raoul Vernon’s Will dated 17 February 2022;
(d) documents recording the manner and/or means by which Raoul Vernon had, prior to the Relevant Period, provided for the plaintiffs independently of the RV Family Trust and the Property Trust; and
(e) documents recording enquiries made prior to and during the Relevant Period by the defendants, via Raoul Vernon, of the circumstances of the plaintiffs, including tax invoices provided by the first plaintiff on behalf of his business to Raoul Vernon and records of payments made by Raoul Vernon of those tax invoices.
In considering the plaintiffs’ discovery application it is helpful to set out two aspects of the defendants’ defence.
The first is that the defendants deny the allegations contained in paragraphs 17 and 32 of the SOC, that at the time of executing the relevant variation deeds the defendants did not inform themselves about the differing circumstances, needs and desires of the plaintiffs. The particulars of these denials in both paragraphs of the defence are identical:
The first plaintiff owns and controls a business, Multimode IT Pty Ltd (ACN 129 129 595) which, amongst other things, provided Information Technology support to the deceased and some of his various business interests, including Vernons Solicitors Pty Ltd (ACN 083 667 029).
Periodically, approximately every one or two months, until early January 2023 the deceased met with the first defendant (sic) in the deceased’s home. During these meetings:
·the first plaintiff would provide a tax invoice on behalf of his business and receive a cheque in payment from the deceased;
·the deceased usually asked about how the first plaintiff, his business and his family were or the first plaintiff volunteered information. The first plaintiff usually said words to the effect that his business was “going well”.
·at the relevant times, the first plaintiff said words to the effect that COVID did not have a significant impact on his business as it was mostly operating remotely;
·On one occasion after the COVID lockdowns had ceased, the first plaintiff said words to the effect ‘I’ve got a business that is doing well, I’ve upgraded my staff with new cars, there are no financial concerns – I recently bought myself a new BMW. Fortunately, I am able to provide for my family, Jordi’s online business “Rupert & Milla” is thriving and the house has lots of storage for her stock.”
·the first plaintiff would discuss his children and never expressed any need on their behalf that he was not capable of meeting personally. For example, the deceased was aware of Milla having an ear infection following a trip to South Australia. Milla’s Down Syndrome was never expressed to be a disability and the first defendant (sic) expressed confidence that she was being well cared for.
·Russo was usually present at these conversations.
The deceased was well aware that the first plaintiff borrowed to purchase his residence. The first plaintiff borrowed approximately $200,000 from the deceased in about May 2021 after showing the deceased various financial records to prove he had no financial need beyond short term financing and could easily service the loan and other loans as well as his lifestyle.
The first plaintiff paid the loan from the deceased back in full within the agreed time.
In May 2021, the first plaintiff purchased a property at 28 Stone Street, Caufield South, for $3,200,000.
The first plaintiff’s wife owns a property at 1 Hawson Street, Glenhuntly, with an estimated value of $1,700,000.
The first plaintiff and his wife have a duty to provide for their children.
None of the plaintiffs advanced any request or matter for consideration to the trustees seeking a distribution at any time.
Further particulars will be provided following discovery and before trial.
The second relevant aspect of the defence is at paragraph 38 of their defence, where the defendants plead:
Further to paragraphs 11, 12, 13, 21, 32 & 36 above:
(a)On 17 February 2022, shortly before executing the Property Trust 2022 Variation Deed and the R V Family 2022 Variation Deed the deceased executed his last Will in circumstances such that:
(i)He knew he had taken steps to ensure he was leaving a substantial estate to the beneficiaries under his Will;
(ii)He knew the first plaintiff was a beneficiary under the Will and receives one-third of the net residuary estate; and
(iii)He knew the first plaintiff and his children had been provided for by the deceased independently of the R V Family Trust and Property Trust.
PARTICULARS
Will dated 17 February 2022. A copy of the last Will is available for inspection upon reasonable request to the defendants’ lawyers.
At the time of this pleading, an application for grant of probate of the last Will is being prepared.
Further particulars will be provided following the grant of probate, discovery and before trial.
Mr Sweeney is the solicitor for the plaintiffs. In support of the plaintiffs’ discovery application he deposed:
(a) in response to the plaintiffs’ allegations of breach of trustee’s duties, the defendants have relevantly pleaded that Raoul Vernon as the controlling mind of each trustee at the relevant time, had regard to the substantial provision he had purportedly made for the plaintiffs under his Will, and the provision he had made for the plaintiffs independently of each of the Trusts;
(b) the central issue in the proceeding is whether the defendants’ discretion in amending the trust deeds of the Trusts to exclude the plaintiffs as beneficiaries was lawfully exercised, particularly whether real and genuine consideration was in fact given, as alleged in the defence;
(c) the financial position of the Trusts, the assets of Raoul Vernon available to be distributed under his Will and the provision alleged to have been made by Raoul Vernon for the plaintiffs independently of the Trusts and the Will, as at and leading up to 10 March 2022, are all relevant to the central issue;
(d) the defendants have discovered documents including:
(i) a file note of Rotman & Morris[2] dated 11 January 2022 which states, ‘In regard to all amounts owing to Raoul from Vernons Private Pty Ltd these amounts would comprise of two amounts one is interest that is received on the amounts lent and two is monies that Raoul has personally advanced to Vernons Private Pty Ltd to enable the monies to be lent out. There could be an assignment of debt to either Tina [Russo] or a trust for Tina’s benefit’;
[2]Raoul Vernon’s lawyers.
(ii) a file note of Rotman & Morris dated 27 January 2022 which records, ‘I am to write to Terry suggesting the following changes…If there are any loan accounts owning to Raoul, these accounts are to be the subject of an assignment of debt in consideration of his recent marriage to Tina such that those loan accounts will be transferred to Raoul and Tina jointly…We are to change the specified beneficiaries so as to not only include Tina and her two daughters but also to specifically exclude Joel and Valentine’;
(iii) a letter from Rotman & Morris dated 14 January 2022 to Raoul Vernon referring to Mr Vernon’s ‘endeavours to isolate your trust and company assets away from your sons’ and ‘We note however that contrary to your instructions, all the shares of Vernons Private Pty Ltd being 3000 Ordinary Shares are held by Vernons Solicitors Pty Ltd and via the RV Unit Trust, those shares are held beneficially held by Sixty Third Octex Pty Ltd’;
(iv) a letter from Rotman & Morris to Ms Theresa Sgambaro dated 2 February 2022 which refers to an email from Ms Sgambaro dated 27 January 2022 which has not been discovered by the defendants;
(v) a letter from Rotman & Morris to Ms Sgambaro dated 9 February 2022 which responds to an email from Ms Sgambaro dated 2 February 2022 which has not been discovered by the defendants;
(vi) an email dated 19 February 2019 from Ms Catherine Hayes to Raoul Vernon which refers to the prospect of ‘supplementary mortgages’ over properties owned by the RV Family Trust in circumstances where the defendants have not discovered any mortgage documents over properties of the RV Family Trust; and
(vii) a file note of Rotman & Morris dated 22 February 2022 noting, ‘At the same time I had a telephone conference call with his accountant Terry Sgambaro in regard to the various entities etc. and she finally explained to me that Vernons Solicitors Pty Ltd does in fact act in two capacities. It acts as a trading company and it also acts as trustee for the RV Unit Trust of which the sole unit holder is Sixty Third Octex Pty Ltd which in turn acts as trustee for the Raoul Vernon Family Trust.
(e) an ASIC search of Vernons Private Pty Ltd records that all of its shares are held by Vernons Solicitors Pty Ltd non-beneficially;
(f) since 12 September 2023 Mr Sweeney has engaged in correspondence with the defendants’ solicitor in respect of apparent delay in making an application for probate of Raoul Vernon’s Will in which the defendants’ solicitor has made various statements about purported investigations and reconstruction of the various accounts of entities associated with Raoul Vernon by an accountant;
(g) Mr Sweeney corresponded with the accountant who advised him that he has not been instructed or engaged by the executors of Raoul Vernon’s deceased estate to reconstruct accounts to enable the executors to prepare an accurate inventory of the estate’s assets;
(h) Mr Sweeney received subsequent correspondence from the defendants’ solicitor informing him the accountant had only a narrow brief received directly from Ms Russo in her independent capacity and that the accounts of the Trusts have not been reconstructed.
Mr Korfiatis is the solicitor for the defendants. In his affidavit sworn in opposition to the plaintiffs’ application, he deposed:
(a) he is also the solicitor with conduct of the probate and administration of the deceased Raoul Vernon’s estate;
(b) the inventory of Raoul Vernon’s estate shows assets to the value of $873,500.00, made up of real estate valued at $850,000.00 and personal assets of $23,500.00, and estate liabilities of $463,920.00 (being a mortgage over the estate’s real estate) and debts to Vernons Solicitors Pty Ltd ‘To be confirmed’;
(c) he sent a letter to Mr Sweeney dated 31 October 2023 noting that the financial accounts for Vernons Solicitors Pty Ltd till 31 December 2022 gave rise to a number of significant queries about potential insolvencies between entities and how assets should be allocated and suggesting that the beneficiaries of the estate join in nominating a forensic accountant to assist in determining the value of the deceased’s share in Vernons Solicitors Pty Ltd and the preparation of an inventory of assets and liabilities to avoid further conflict and litigation;
(d) he sent a letter to the plaintiffs’ solicitors’ firm on 15 February 2024 informing them that the executor of Raoul Vernon’s estate, Ms Russo, intended to sell the estate’s real property and motor vehicle; and
(e) Mr Paul Lom of PKF Melbourne has been engaged by Raoul Vernon’s estate to assist in determining the value of Vernons Solicitors Pty Ltd and the debts owed by the first and second defendants to Vernons Solicitors Pty Ltd (which are estate assets).
The plaintiffs’ application for particular discovery is made pursuant to r 29.08, which provides:
(1) This Rule applies to any proceeding in the Court.
(2)Where, at any stage of a proceeding, it appears to the Court from evidence or from the nature or circumstances of the case of from any document filed in the proceeding that there are grounds for a belief that some document or class of document relating to any question in the proceeding may be or may have been in the possession of a party, the Court may order that party to make and serve on any other party an affidavit stating—
(a)whether that document or any, and if so what, document or documents of that class is or has been in that party’s possession; and
(b)if it has been but is no longer in that party’s possession, when the party parted with it and that party’s belief as to what has become of it.
(3)An order may be made against a party under paragraph (2) notwithstanding that the party has already made or been required to make an affidavit of documents.
In order to understand that availability and scope of discovery available in proceedings raising the validity of the exercise of discretion by the trustee of a discretionary trust, it is useful to have regard to the principles arising from the authorities.
In Karger v Paul (Karger)[3] McGarvie J was called upon to consider the grounds upon which the exercise of discretion by a trustee of a discretionary trust may be examined and reviewed:
For the plaintiff it was submitted that in this case the Court should examine whether the trustees gave fair and proper consideration to the exercise of the discretion and that the plaintiff should succeed in the action if they did not. In my view, in this case it is open to the Court to examine the evidence to decide whether there has been a failure by the trustees to exercise the discretion in good faith, upon real and genuine consideration and in accordance with the purposes for which the discretion was conferred. As part of the process of, and solely for the purpose of, ascertaining whether there has been any such failure, it is relevant to look at evidence of the inquiries which were made by the trustees, the information they had and the reasons for, and manner of, their exercising their discretion. However, it is not open to the Court to look at those things for the independent purpose of impugning the exercise of discretion on the grounds that their inquiries, information or reasons or the manner of exercise of the discretion, fell short of what was appropriate and sufficient. Nor is it open to the Court to look at the factual situation established by the evidence, for the independent purpose of impugning the exercise of the discretion on grounds the trustees were wrong in their appreciation of the facts or made an unwise or unjustified exercise of discretion in the circumstances. The issues which are examinable by the Court are limited to whether there has been a failure to exercise the discretion in good faith, upon real and genuine consideration and in accordance with the purposes for which the discretion was conferred. In short, the Court examines whether the discretion was exercised but does not examine how it was exercised.
…
It is an established general principle that unless trustees choose to give reasons for the exercise of a discretion, their exercise of the discretion cannot be examined or reviewed by a court so long as they act in good faith and without an ulterior purpose.
[3](1984) VR 161, 164-165.
In Cohen & Ors v Amberley Corporation Australia Pty Ltd (Cohen)[4] Derham AsJ considered the principles articulated in McGarvie J’s statement and those set out by Macaulay J in Mandie & Anor v Memart Nominees Pty Ltd[5] and provided the following useful summary:
[4][2016] VSC 140, [27]-[29].
[5][2014] VSC 290; (2014) 42 VR 325.
As McGarvie J noted in Karger, whether a discretion has been exercised irresponsibly, capriciously or wantonly is another way of saying that there may be an examination as to whether trustees have exercised their discretion on real and genuine consideration. But as Hayne J noted in Esso Australia Ltd v Australian Petroleum Agents & Distributors’ Association, in the absence of a statement of reasons, it is generally not possible to conclude that the trustee has taken into account irrelevant matters or has failed to consider relevant matters. Importantly, the soundness of the exercise of a discretion can only be examined where reasons have been given. Trustees are, however, not bound to disclose or explain their reasons for exercising a discretion in a particular manner.
In Karger, McGarvie J held that:
(a)so long as three essential component parts of the exercise of the particular discretion are ‘present’, courts cannot examine and review a trustee’s exercise of that discretion. Those components are: that the discretion is exercised by the trustees in good faith, upon real and genuine consideration and in accordance with the purposes for which the discretion was conferred. The exception is that the validity of the trustees’ reasons will be examined and reviewed if the trustees choose to state their reasons for their exercise of discretion;
(b)this exception does not apply where at trial, the trustee gives in evidence an account of its reasons as it would defeat the policy which underlies the principle if beneficiaries, by alleging lack of good faith against the trustee in an action and for practical purposes, thus virtually obliging it to disclose in evidence the way they went about exercising the discretion, obtain a right to examination and review of the discretion which they otherwise would not have. The exception to the principle seems to proceed on the basis that if trustees of their own volition disclose their reasons, they are treated as waiving their immunity and inviting examination and review of the reasons; and
(c)where there is a specific allegation of breach of trust, it is open to the Court to examine the evidence to decide whether there has been a failure by the Trustees to exercise the discretion in good faith, upon genuine consideration and in accordance with the appropriate purpose. In conducting this examination, the Court may consider the inquiries made by the Trustees, the information they had and their reasons for, and the manner of, their exercise of the discretion. But it is not open to the Court to look at these matters for the independent purpose of impugning the exercise of the discretion on grounds that their enquiries were inadequate, their appreciation of the facts was wrong or their decision unwise. The Court examines whether the discretion was exercised but it does not examine how it was exercised.
In the decision of Macaulay J at first instance in Mandie, his Honour reviewed the authorities concerning the right of beneficiaries to trust documents and information in a proceeding that did not involve any allegation of bad faith or improper purpose, or the like, and concluded:
It would be dangerous to suggest that the foregoing review of the authorities reveals any particular series of ‘rules’ concerning the circumstances in which documents or information should be disclosed by trustees to beneficiaries of a trust. But, at least in the context of deciding whether or not documents or information should be divulged when there is a contention that such information or documents may reveal the deliberations, reasons or motives of trustees in arriving at a decision committed to their absolute and uncontrolled discretion, I consider that my approach should be guided by the following principles or considerations:
(a)Subject to various limitations, broadly speaking a trustee has a duty to provide beneficiaries with accurate information concerning the administration of the trust and to permit examination of documents that relate to the trust and its administration.
(b)The source of the trustee’s duty, and the beneficiaries’ correlative right, has in the past been explained by reference to proprietary rights enjoyed by the beneficiaries, or the categorization of documents as either trust or non-trust documents. But, in recent times, it has been viewed as an aspect or manifestation of the court’s jurisdiction to supervise and, where appropriate to intervene in, the administration of trusts.
(c)The duty and the correlative right extends beyond the provision of information in documentary form to information of a non-documentary kind.
(d)Generally, beneficiaries cannot pursue disclosure of the reasons why a trustee exercised an absolute discretion, whether in writing or otherwise, outside of an action brought by the beneficiaries for breach of trust or mala fides when issues of relevance can appropriately be determined.
(e)The protection afforded to trustees against having to disclose their reasons extends to protecting the disclosure of evidence of the trustees’ deliberations and the material upon which the trustees’ reasons were or might have been based – that is, at the least, material that is so integrated with the trustee’s reasoning process that its disclosure may reveal that reasoning process.
(f)A trustee’s immunity from giving reasons for the exercise of a discretion is founded upon (1) the irrelevance of those reasons because, absent a breach of trust, a court will simply not interfere; (2) the essentially confidential nature of the trustee’s task, serving the interests of the beneficiaries as a whole; and (3) the avoidance of making the task of a discretionary trustee intolerable.
(g)An exception to that principle of immunity exists where a trustee has volunteered the reasons for exercising the discretion and thereby waived the immunity.
(h)In any conflict between the application of the two principles, that is, between a beneficiary’s entitlement to inspect trust documents and to obtain information about the administration of the trust, and the trustees’ immunity for giving reasons for the exercise of a discretion, the principle of the trustees’ immunity is generally to prevail.
(i)Even in an action brought against the trustee alleging breach of trust in the exercise of discretion – and assuming the trustee has not waived the immunity - the trustee’s reasons are only examinable to ascertain whether the discretion has been exercised (ie. honestly, for a proper purpose and on fair consideration), not how it was exercised.
[citations omitted].
The plaintiffs seek documents recording the financial position of the RV Family Trust and the Property Trust and the value of Raoul Vernon’s assets in the period from 14 January 2022 to 10 March 2022. The plaintiffs submitted the financial position of the trusts during this period, including relative to Raoul Vernon’s personal estate, is relevant to the Court’s consideration whether, in determining to exclude the plaintiffs as beneficiaries, the trustees lawfully exercised their discretion.
The plaintiffs placed significant emphasis on the defendants’ positive pleading that in executing the variation deeds the defendants properly exercised their discretion. The plaintiffs then submitted that the content of paragraph 38 of the defence identifies particular matters that the defendants allege establish the propriety of their exercise of the discretion. As noted above, paragraph 38 of the defence makes specific reference to the deceased’s execution of his Will shortly before executing the variation deeds. It also refers to the deceased’s knowledge at the time he executed his Will, being, (i) he had taken steps to ensure he was leaving a substantial estate to the beneficiaries under his Will; (ii) the first plaintiff receives one third of the net residuary estate under his Will; and (iii) the deceased had provided for the first plaintiff and his children independently of the RV Family Trust and the Property Trust.
The plaintiffs submitted that a fair reading of the defence was that the deceased’s knowledge at that time was to be imputed to the defendants because he was the sole director. Counsel for the plaintiffs said he understood the defendants’ pleading to allege that the exclusion of the plaintiffs from their potential entitlements under the trusts was offset by the provision made for them under the deceased’s Will and provision made for them independent of the trusts.
The plaintiffs pointed to the contents of the deceased’s lawyers’ file notes as inconsistent with this pleading, particularly that the deceased’s intended to minimise the size of his personal estate to minimise the magnitude of any potential claim by a beneficiary of his Will.
The plaintiffs argued, the documents sought in the first three categories of their application comprise evidence to which the Court will have regard where the information recorded in those documents was at the trustees’ disposal when exercising their discretion to exclude the plaintiffs as beneficiaries.
In relation to the fourth and fifth categories of documents sought, the plaintiffs submitted that these related to questions raised by the defendants’ pleading, in particular:
(a) the defendants allegation that Raoul Vernon knew that he had provided for the ‘first plaintiff and his children…independently of the R V Family Trust and Property Trust’; and
(b) the particulars to paragraph 17 of the defence which state that, through Raoul, the defendants made ‘repeated enquiries of the first plaintiff as to his circumstances and the circumstances of the other plaintiffs’.
According to the plaintiffs, the Court will need to assess the likely values of the potential entitlements of the beneficiaries under the trusts and under the deceased’s Will in order to consider this aspect of the defence.
The plaintiffs submitted that their allegation of breach of trust has been properly made and so particular discovery is available. In doing so the plaintiffs relied on the following statement of Derham AsJ in Cohen[6] not extracted above:
Suffice it to say, that if it can properly be alleged that the Trustee has acted otherwise than in good faith, or has failed to give real and genuine consideration to the exercise of the discretion, or has not acted in accordance with the purposes for which the discretion was conferred, then particular discovery under r 29.08 will be available.
[6]Cohen (n 4), [66].
The defendants submitted that documents evidencing the financial position of the RV Family Trust and the Property Trust in the period 14 January 2022 to 10 March 2022 are irrelevant to the plaintiffs’ claim because that claim concerns the validity of the deeds of amendment and the plaintiff does not otherwise make allegations about the administration of the trusts. The defendants submitted that even if the plaintiffs were discretionary beneficiaries of the trusts, which they are not, they do not have an entitlement to these documents.
The defendants submitted the plaintiffs’ reliance on Karger was misplaced in circumstances where the plaintiffs’ allegations concerned the lawfulness of the deeds of variation of the trusts and not financial mismanagement or an improper exercise of a trustee’s power of distribution to a beneficiary. The defendants said Derham AsJ’s statement in Cohen could not be understood to dispense with the requirement of relevance to found an order for particular discovery. Further, the plaintiffs had conflated the relevant considerations of discretions exercised in the distribution of trust assets with the discretion exercised in the amendment of the trust deeds. According to the defendants the overall financial position of the trusts is not relevant to the discretions the plaintiffs seek to challenge.
In relation to the categories of documents evidencing the net value of Raoul Vernon’s estate, the defendants submitted that the plaintiffs already have the Will and the inventory of assets and liabilities filed in the probate proceeding. The plaintiffs are aware the estate is still engaged in a process of valuing the estate assets. The defendants argued the valuation of individual estate assets is not in issue in this proceeding and therefore irrelevant to the plaintiffs’ claim. The deceased’s testamentary intention is in issue but the defendants said that intention was evidenced by the terms of the Will, not the size of the deceased’s estate at the time of his death.
The defendants submitted that in seeking these categories of documents the plaintiffs really sought to discover the value of the estate and so the value of the first plaintiff’s inheritance. To the extent the estate assets included loans between the deceased and the trusts, the defendants submitted the plaintiffs were attempting to access trust financial records to which they were not otherwise entitled, by the ‘back door’. The defendants submitted that an updated inventory of the estate assets and liabilities will be readily available to the first plaintiff as a beneficiary under the terms of the Will, ‘at the appropriate time’. The current uncertainty about the assets of the estate relate to the value of the deceased’s shares in Vernons Solicitors Pty Ltd and the value of debts to Vernons Solicitors Pty Ltd. The defendants submitted that the estate has engaged an accountant to determine the value of Vernons Solicitors Pty Ltd and, as part of that process, the value of the debts owed by the first and second defendants to Vernons Solicitors Pty Ltd. The value of the deceased’s estate Will only be known once the accountant has completed this work.
The defendants submitted that the plaintiffs had not demonstrated the relevance of any documents likely to fall within the estate value category beyond an updated inventory of assets and liabilities and, perhaps, the accountant’s report, neither of which currently exists.
In relation to documents recording the manner and/or means by which Raoul Vernon had, prior to the Relevant Period, provided for the plaintiffs independently of the RV Family Trust and the Property Trust, the defendants’ pleading is that this had been by way of gifts under the deceased’s Will. The defendants said that it could be assumed that the deceased contributed in many different ways to the upbringing and provision for the plaintiffs as children and adults.
In relation to documents evidencing enquires made of the plaintiffs, the defendants submitted that tax invoices and records of payments could reasonably be assumed to be in the plaintiffs’ possession and so, pursuant to r 29.01.1(4), not discoverable by the defendants. The defendants said that to the extent such enquiries go to the reasons behind the amendments, such documents were not discoverable by the trustees because they had not waived privilege and were under no obligation to disclose their reasons. The defendants relied on the Court of Appeal’s statement in Curwen & Ors v Vanbreck Pty Ltd:[7]
A discretionary trustee is not obliged to disclose to objects the reasons actuating them in arriving at a decision… [N]o amount of notice of the appellants’ allegation could require Prudence (as the mind of the trustee and by whom the trustee gave evidence), either in her affidavit or in any additional evidence in chief at the trial, to state her reasons for decision. As a matter of law, she was entitled not to do so.… No adverse inference of any improper purpose could be drawn from the non-disclosure in her evidence of the trustee’s reasons.
[7](2009) 26 VR 355, 348-9 [25] as cited in Mandie v Memart Nominees Pty Ltd [2020] VSCA 281, [263].
I am not satisfied that the terms of the defence constitute a relevant statement of reasons of the trustees for the exercise of their discretion to exercise the variation deeds. The defence was filed in response to the plaintiffs’ claims which were made significantly after the deeds of variation were executed by the respective defendants. The defence does not purport in terms to be a statement of reasons.
That being so, discovery is available if it can be properly alleged that the defendants have acted otherwise than in good faith, or have failed to give real and genuine consideration to the exercise of the discretion, or have not acted in accordance with the purposes for which the discretion was conferred.
It is necessary to first examine the plaintiffs’ pleading to understand the allegation made. Beyond the bare allegations of failure of the defendants to act in good faith, upon a genuine consideration and in accordance with the purpose of the discretion, the real content of that allegation is contained in the particulars. Those particulars, in relation to the decision of the defendants to execute the variation deeds, rely on:
(a) The removal of the plaintiffs as beneficiaries and the insertion of the new beneficiaries;
(b) The alleged failure to consider that the first plaintiff had four dependants and was a self-employed small business operator, adversely affected by COVID restrictions;
(c) The alleged failure to consider the particular needs of the second plaintiff;
(d) Raoul’s alleged primary consideration to minimise his personal estate and make changes to his companies and trusts to provide primarily for Tina and her family and minimise the assets passing to Raoul’s two sons; and
(e) Raoul’s efforts to minimise the size of his estate to lower the magnitude of any claims that might be made by aggrieved beneficiaries.
Paragraph 38 of the defence alleges that shortly before executing the variation deeds, the deceased executed his Will in circumstances where he knew he had taken steps to ensure he was leaving a substantial estate to his beneficiaries, of which the first plaintiff was one, and where he knew the first plaintiff and his children had been provided for independently of the trusts.
It is against these matters that the Court must assess the relevance of the categories of documents sought by the plaintiffs.
I am not satisfied that I should order discovery of the first two categories of documents sought by the plaintiffs. Relevantly, the pleadings contain no allegation of maladministration of the Trusts. Rather the allegation of bad faith is levelled at the purported exclusion of the first plaintiff and his brother as beneficiaries of the Trusts, effected through the variation deeds. The financial position of the Trusts in the period 14 January 2022 to 10 March 2022 is irrelevant to that allegation. I do not accept the plaintiffs’ submission that the current content of the pleading requires the Court to examine a comparison between the first plaintiff’s possible entitlements under the trusts and the deceased’s Will. In my view that is not explicitly pleaded nor a reasonable inference of the current pleadings.
In my view the defendants have put the value of the deceased’s estate at the time the variation deeds were executed in issue by virtue of paragraph 38 of their defence. The same is true in relation to category four, documents recording or evidencing the manner and/or means by which the deceased had provided for the plaintiffs independently of the trusts. Accordingly, I will order that the defendants make discovery of the third and fourth category of documents sought.
I have also decided that the fifth category of documents is largely relevant to the issues in the proceeding. They are relevant because of the defendants’ pleading that the deceased usually asked the first plaintiff about how his business and family were faring. I agree with the defendants however, that copies of tax invoices provided by the first plaintiff to the deceased can reasonably be expected to already be in the first plaintiffs’ possession and so need not be discovered as part of this category.
Conclusion
For the reasons given above I will:
(a) Grant leave to the plaintiffs to file and serve an amended statement of claim in the form exhibited to the affidavit of Matthew Dominic Sweeney sworn on 14 March 2024 but with the amendments limited to those in paragraphs 15 and 29 and the particulars to paragraphs 21 and 36;
(b) Order that the defendants provide discovery of the third, fourth and fifth categories of documents sought by the plaintiffs, with the reference to ‘tax invoices provided by the first plaintiff on behalf of his business to Raoul Vernon’ deleted;
(c) Otherwise, dismiss the plaintiffs’ summons filed 15 March 2024.
I request that the parties provide orders giving effect to these reasons. I also request that the parties confer on the costs of the plaintiffs’ summons. If the parties are unable to reach agreement on the terms of any orders within seven days of the date of these reasons, the proceeding will be relisted for any necessary oral submissions on the form of orders and costs.
SCHEDULE OF PARTIES
| S ECI 2023 03173 | |
| BETWEEN: | |
| VALENTINE SHRAGA VERNON | First Plaintiff |
| MILLA GABRIELLE VERNON (a minor, by her Litigation Guardian, VALENTINE VERNON) | Second Plaintiff |
| LUCA JASMINE VERNON (a minor, by her Litigation Guardian, VALENTINE VERNON) | Third Plaintiff |
| NOAH ELI VERNON (a minor, by his Litigation Guardian, VALENTINE VERNON) | Fourth Plaintiff |
| - v - | |
| SIXTY THIRD OCTEX PTY LTD (ACN 006 176 334) | First Defendant |
| MESHUG PTY LTD (ACN 169 016 657) | Second Defendant |
0
3
2