Applicant v Respondent

Applicant v Respondent - [2014] VSC 310 - VSC 2014 case summary — Zoe

[17]

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 the grounds that 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 examined 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.

I regard it as an inherent requirement of the exercise of any discretion that it be given real and genuine consideration ... It seems to me that it is in this sense only that the Court can examine whether the trustees gave "proper" consideration to the exercise of the discretion ... The courts will examine whether a discretion has been exercised irresponsibly, capriciously or wantonly ... This is another way of saying that there may be an examination as to whether trustees have exercised their discretion on real and genuine consideration ... It is an established general principle that unless trustees choose to give reasons for the exercise of a discretion, their exercise of the discretion can not be examined or reviewed by a court so long as they act in good faith and without an ulterior purpose ... For reasons given above, I would add the further requirement, so obvious that it is often not mentioned, that they act upon real and genuine consideration.

[41]

(c) Paragraphs 47 to 50. The objections taken to each of these paragraphs are similar. They include objections that the deponent does not speak of the facts in these paragraphs of his own knowledge, or comply with r 43.03(1) as to the use of evidence derived from information and belief. Objection is also taken to these paragraphs as argumentative, speculative, too general, ambiguous and conclusory. The paragraphs refer to discussions between the applicant and his mother Kitty Schreuders, a director of the trustee when the deed of variation was executed. They also state the applicant's beliefs concerning his mother and brother, Harry Schreuders, who also was a director of the trustee when the deed of variation was executed. That evidence and those beliefs are relevant to the test set out in r 32.05(a). In Plzen Pty Ltd Pty Ltd v P&O Wharf Management Pty Ltd,[9] Habersberger J summarised the applicable principles. The applicant does not have to show a prima facie case for relief. However, the application must be based on more than a mere hunch. Belief requires more than mere assertion and more than suspicion or conjecture. The evidence must incline the mind towards the matter or fact in question. In my view, paragraphs 47 to 50 of the applicant's affidavit should be admitted as material supporting the applicant's belief that he has reasonable cause to believe that he has or may have the right to obtain relief in the Court. The paragraphs depose as to matters which may incline the mind towards the matter or fact in issue when taken together with the other matters set out in the applicant's affidavit. They include direct evidence by way of observation by the deponent of his mother Kitty Schreuders, his brother Harry Schreuders and the relationship between them. Rule 43.03(2) provides that on an interlocutory application an affidavit may contain a statement of fact based on information and belief if the grounds are set out. The admissibility and ultimate probative value of this evidence may be disputed at trial, but the evidence should be received on this application. The objections taken to paragraphs 47 to 50 are disallowed.

[52]

If the Trustee in deciding to exercise the power acted upon the dual consideration of whether the beneficiaries ought to be entitled to a potential distribution of trust assets and whether those beneficiaries ought to be given access to trust documents, so that the latter consideration should be regarded as part of the trustee's primary intention, it would be an invalid exercise of power. We find no support in the cases referred to by the Trustee for the proposition that the improper purpose must be the primary or dominant purpose. In our view the improper purpose will constitute a fraud on the power if it be an operative or actuating purpose - one without which it cannot be said the appointment would have been made. However, on the assumption that the appellants' submission as to the inference to be drawn from the facts is correct and the circumstantial evidence demands that such an improper purpose be inferred, then the conclusion is inescapable that such a reason was primary to the exercise of the power. Hence the Trustee's arguments under cover of its notice of contention could not provide an alternative basis for the trial judge's decision.

...

The appellants rely upon circumstantial evidence to establish a fraudulent or improper purpose on the part of the trustee. A subjective intention or purpose may be inferred from objective or circumstantial matters which may include the exercise of a power of appointment. But the fact that an appointment is consistent with an improper purpose will not necessarily lead to the drawing of such an inference. So in Vatcher v Paull, it was said that 'it is not enough that an appointor or some person not an object of power may conceivably derive some benefit'. An intention by an appointor to obtain an improper end is not necessarily to be inferred because the effect of an appointment is consistent with there having been an improper purpose in the making of the appointment. It will be a question of fact in each case.

It does not follow from the fact that a trustee recognises a consequence of their actions, that the consequence constitutes a reason or purpose for its action.

...

[94]

In Schmidt (at 729), the Privy Council rejected the proprietary interest theory and adopted the approach that the right to seek disclosure of trust documents was an aspect of the Court's inherent jurisdiction to supervise and, if necessary, to intervene in the administration of trusts. Since that right was not confined to proprietary interests, the object of a discretion or a mere power might also be entitled to protection. Their Lordships went on to say (at 729-730) that they were in general agreement with the approach adopted in the judgments of Kirby P and Sheller JA in Hartigan Nominees. Having concluded that the right to information depended upon the Court's exercise of its inherent jurisdiction, Lord Walker of Gestingthorpe, who delivered the advice on their Lordships' behalf, stated (at 734-735) that no beneficiary had any entitlement as of right to disclosure of any trust document:

"However, the recent cases also confirm (as has been stated as long ago as In re Cowin 33 Ch D 179 in 1886) that no beneficiary (and least of all a discretionary object) has any entitlement as of right to disclosure of anything which can plausibly be described as a trust document. Especially when there are issues as to personal or commercial confidentiality, the court may have to balance the competing interests of different beneficiaries, the trustees themselves, and third parties. Disclosure may have to be limited and safeguards may have to be put in place. Evaluation of the claims of a beneficiary (and especially of a discretionary object) may be an important part of the balancing exercise which the court has to perform on the materials placed before it. In many cases the court may have no difficulty in concluding that an applicant with no more than a theoretical possibility of benefit ought not to be granted any relief."

The consequence is that according to Schmidt, there is no longer a general rule that a beneficiary has a right to inspect trust documents that is subject to exceptions, notably concerning the reasons for the exercise of the trustee's discretion and confidentiality in third parties. In each case it is a matter for the Court to exercise its discretion by balancing competing interests. Lord Walker suggested (at 730) that in Re Londonderry's Settlement and more recent cases, including the Australian decisions of Spellson, Hartigan Nominees and Rouse, the courts have begun to work out in detail the way in which the Court should exercise its discretion.

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