Applicant v Respondent

2 Following a hearing, Zammit AsJ published reasons for judgment on 20 March 2014,[1] and on 11 April 2014 made an order for preliminary discovery by the trustee of seven categories of documents ('the order').

3 By a notice of appeal dated 2 May 2014 ('the notice of appeal'), the trustee has appealed from sub-paragraphs 2(b)-(g) of the order. Ground 2 of the notice of appeal challenges the ruling by her Honour that various paragraphs of the applicant's affidavit sworn on 17 December 2013 ('the applicant's affidavit') in support of the application for preliminary discovery were admissible. Grounds 3 to 7 of the notice of appeal challenge the findings made and relief granted by her Honour.

4 The appeal is brought by the trustee under r 77.06 of the Supreme Court (General Civil Procedure) Rules 2005 ('the Rules'). The nature of the appeal is by way of rehearing in which the trustee must establish error as identified in its notice of appeal. Such appeals are no longer by way of rehearing de novo.[2]

5 Rule 32.05 of the Rules provides:

(a) there is reasonable cause to believe that the applicant has or may have the right to obtain relief in the Court from a person whose description the applicant has ascertained;

(b) after making all reasonable inquiries, the applicant has not sufficient information to enable the applicant to decide whether to commence a proceeding in the Court to obtain that relief; and

(c) there is reasonable cause to believe that that person has or is likely to have or has had or is likely to have had in that person's possession any document relating to the question whether the applicant has the right to obtain the relief and that inspection of the document by the applicant would assist the applicant to make the decision -

the Court may order that that person shall make discovery to the applicant of any document of the kind described in paragraph (c).

6 Her Honour's reasons show that she considered each requirement of r 32.05. As to r 32.05(a), her Honour was satisfied on the evidence that there was reasonable cause to believe that the applicant may have the right to obtain relief in the Court from the prospective defendant. Her Honour held that the mere fact that he was removed without notice and the series of events which gave rise to Kitty and Harry Schreuders being the sole directors of the trustee and their actions, gave rise to a belief that there is reasonable cause. A firm view was not required at this stage.[3]

7 Her Honour considered that the requirements of r 32.05(b) were met, because objectively there was insufficient information available to satisfy the requirements of the cause of action as set out in the decision of McGarvie J in Karger v Paul.[4]

8 Her Honour quoted from the well known passage in that decision, where McGarvie J said:[5]

[W]ith one exception, the exercise of a discretion in these terms will not be examined or reviewed by the courts so long as the essential component parts of the exercise of the particular discretion are present. Those essential component parts are present if 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.

9 Her Honour set out a further passage from Karger v Paul, where McGarvie J said:[6]

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.

10 Her Honour was satisfied that there was sufficient evidence to warrant an order for preliminary discovery to assist the applicant to determine whether he had a cause of action against the prospective defendants.[7]

11 There was no evidence from the trustee that the documents sought were not in the trustee's possession or control, and her Honour was satisfied that r 32.05(c) was satisfied.[8]

12 Finally, her Honour exercised her discretion in favour of the applicant having been satisfied that all of the requirements of r 32.05 were met.

13 The six grounds of the notice of appeal are numbered 2 to 7:

1. Her Honour erred in ruling that the following paragraphs of the Affidavit of Marius Jan Schreuders sworn on 17 December 2013 were admissible:

(a) Her Honour should have ruled that such paragraphs were inadmissible on the grounds articulated hereunder:

Is not confined to facts which the deponent is able to state of his own knowledge, Order 43.03(1). Argumentative, speculative, generality and ambiguity. Conclusory - not facts.

Is not confined to facts which the deponent is able to state of his own knowledge, Order 43.03(1). Argumentative, speculative, generality and ambiguity. Conclusory - not facts. At best a submission or argument.

Irrelevant. This is material that deposes to events prior to the deed of [variation] being executed.

Is not confined to facts which the deponent is able to state of his own knowledge, Order 43.03(1). Argumentative, speculative, generality and ambiguity. Conclusory - not facts an opinion . At best a submission or argument.

Is not confined to facts which the deponent is able to state of his own knowledge, Order 43.03(1). Argumentative, speculative, generality and ambiguity. Conclusory - not facts.

Is not confined to facts which the deponent is able to state of his own knowledge, Order 43.03(1). Argumentative, speculative, generality and ambiguity. Conclusory - not facts.

Is not confined to facts which the deponent is able to state of his own knowledge, Order 43.03(1). Argumentative, speculative, generality and ambiguity. Conclusory - not facts. State of mind of another person.

Is not confined to facts which the deponent is able to state of his own knowledge, Order 43.03(1). Argumentative, speculative, generality and ambiguity. Conclusory - not facts.

Is not confined to facts which the deponent is able to state of his own knowledge, Order 43.03(1). Argumentative, speculative, generality and ambiguity. Conclusory - not facts.

1. Her Honour erred in finding that there was reasonable cause to believe that the Applicant may have the right to obtain relief in the Court from the Respondent when there was no direct evidence or other admissible evidence from which could be inferred an improper purpose against the Trustee of the Schreuders Family Settlement in executing the Deed of Variation which excluded him as a beneficiary of the Trust.
2. Her Honour erred in finding that there was sufficient evidence before the court to discharge the burden of proof on the Applicant under Order 32.05, for an order for discovery in the terms of the Orders, of further documentation and information to assist the Applicant to determine whether he has a cause of action based on the principles set out in Karger v Paul against prospective defendants.
3. Having found that the relief sought by the Applicant was declaratory relief, in that the decision by the trustee in 1990 to remove him as a beneficiary was an improper exercise of any express power of the deed of trust, Her Honour erred in ruling in paragraphs 2 (b) and (c) of the Orders that the Respondent give preliminary discovery of:

(a) Any and all documents recording distributions paid by any trustee to each beneficiary of the Schreuders Family Settlement from 1990 to present;

(b) Any and all financial accounts of the Schreuders Family Settlement from 1992 present;

"for the purpose of assessing quantum" when no remedy seeking damages or other monetary sum was sought by the Applicant; or they are otherwise not relevant to the declaratory relief sought.

1. Further or alternatively, Her Honour erred in ordering that the Respondent give preliminary discovery to the Applicant in paragraph 2 (d) and (e) of the Orders when the Applicant had been excluded as a beneficiary of the Schreuders Family Settlement when there was no evidence or alternatively, sufficient evidence to establish that he has or may have a right to relief.
2. Her Honour erred ordering that the Respondent give preliminary discovery to the Applicant in paragraph 2 (f) of the Orders namely legal advice when same would otherwise be subject to legal professional privilege.

14 Grounds 2 to 4 and 6 relate to the decision made by her Honour to order preliminary discovery. Ground 5 relates to sub-paragraphs 2(b) and (c) of the order for preliminary discovery. Ground 7 raises the issue of legal professional privilege in relation to sub-paragraph 2(f) of the order.

15 Ground 2 contains objections to various paragraphs of the applicant's affidavit. I will decide the objections by reference to the numbered paragraphs of the applicant's affidavit.

(a) Paragraphs 7 and 8. These paragraphs are argumentative and conclusory, and should be excluded. The objection is upheld.

(b) Paragraphs 9 to 38. The objection taken to these paragraphs is that they are irrelevant deposing to events prior to the deed of variation being executed. The circumstances and events relevant to factual issues in the proposed proceeding may include events which occurred before, during, or after the execution of the deed of variation. There is no reason why the applicant cannot rely on facts and circumstances which predate the execution of the deed of variation to assist in establishing that there is reasonable cause to believe that the applicant has or may have the right to obtain relief in the Court. The objection to paragraphs 9 to 38 is disallowed.

(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.

(d) Paragraph 51. Apart from the part of the sentence which states "my father did not exclude me as a beneficiary of the Trust" which is an uncontroversial fact, this paragraph is argumentative and conclusory, and should be excluded. As a result, the only part of paragraph 51 that is admitted is the statement "my father did not exclude me as a beneficiary of the Trust". The balance of paragraph 51 is excluded.

(e) Paragraph 57. This paragraph is argumentative, speculative and conclusory. It is excluded.

16 As a result, ground 2 of the notice of appeal is upheld to the extent that paragraphs 7, 8, 51 apart from the words "my father did not exclude me as a beneficiary of the Trust", and 57 are excluded. These exclusions are additional to the exclusions resulting from the objections to paragraphs of the applicant's affidavit previously upheld by her Honour. Ground 2 is dismissed as to the objections taken to the other paragraphs.

17 The effect of the additional exclusions is that the application for preliminary discovery stands to be considered on the basis of the evidence now admitted, rather than the somewhat more extensive evidence admitted by her Honour. As will emerge, it is my view that the additional exclusions have no material effect on her Honour's reasoning or on the result of the application for preliminary discovery.

18 The trustee contends that her Honour was precluded from arriving at the view that she did that the requirements of r 32.05(a) were satisfied by the fact that there was no direct evidence or other admissible evidence from which an improper purpose could be inferred against the trustee when the deed of variation was executed. The absence of direct evidence is not unexpected as the applicant was not informed by the trustee or anyone acting on its behalf of his pending exclusion as a beneficiary of the trust. Although he was a beneficiary of the trust, he was not a party to any of the proceedings or discussions which are likely to have occurred between the directors of the trustee about his exclusion. The applicant was not then in receipt of legal advice, and does not know whether the trustee obtained any legal advice prior to his exclusion as a beneficiary.

19 It necessarily follows that the only evidence that the applicant can provide at this stage is circumstantial. As he was excluded from the trustee's deliberations at all times, it is not possible for him to provide any direct or admissible evidence of improper purpose on the part of the trustee. The inability of the applicant to provide direct or admissible evidence of improper purpose by the trustee is not a bar to success in an application for preliminary discovery. Indeed, it is the very reason for the application.

20 Rule 32.05(b) requires the court to conclude that after making all reasonable inquiries, the applicant has not sufficient information to enable him to decide whether to commence a proceeding in the Court to obtain relief. In the present circumstances, it is the very absence of direct or other admissible evidence that points to the conclusion that the applicant does not have sufficient information to decide whether to commence a proceeding in the Court to obtain that relief. The application for preliminary discovery is intended to assist the applicant to overcome the deficiency of information and permit him to make a decision whether or not to commence a proceeding after having been provided with additional information by the prospective defendant.

22 In ground 4, the trustee contends that there was not sufficient evidence before the court to discharge the burden of proof on the applicant under r 32.05. In ground 6, the trustee contends that there was no evidence or not sufficient evidence to justify the orders made in sub-paragraphs 2(d) and (e) of the order. The documents ordered to be provided under sub-paragraphs 2(d) and (e) include board papers, minutes of meetings, resolutions and documents containing or referring to any resolution passed by the trustee to exclude or remove the applicant as a beneficiary of the trust.

23 The applicant is contemplating a proceeding seeking to set aside the deed of variation so being reinstated as a beneficiary in a discretionary trust. Such a claim is far from easy to establish. In Curwen v Vanbreck Pty Ltd,[10] Mandie J considered a claim that the exercise by a trustee of an exclusion power in a trust deed to remove certain beneficiaries was undertaken for improper purposes. Mandie J was not satisfied on the evidence that it was. Mandie J accepted and applied the principles stated by McGarvie J in Karger v Paul.[11]

24 An appeal from Mandie J's judgment was dismissed.[12] The former beneficiaries bore the onus of establishing that the trustee's exercise of discretion was not made for a proper purpose. They failed to do so. The Court held:[13]

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.

...

25 The principles stated by McGarvie J in Karger v Paul[14] have been followed and applied in many later cases.[15]

26 The applicant's affidavit may be taken as showing for present purposes that:

(a) The applicant was appointed a director of the trustee on the establishment of the trust and remained a director until December 1982.

(b) Prior to 1990, the applicant was a beneficiary of the trust.

(c) In 1990, the trustee excluded the applicant as a beneficiary of the trust by the execution of the deed of variation.

(d) At this time, the directors of the trustee were Kitty Schreuders and Harry Schreuders.

(e) The applicant became aware of his exclusion as a beneficiary of the trust when his solicitor received a letter dated 13 November 2012 from the trustee's solicitors advising him of that fact.

(f) The applicant had not requested that he be removed as a beneficiary. He was not advised by his brother or mother, as directors of the trustee, or anyone else that it was intended to remove him as a beneficiary. The applicant was not aware that his removal as a beneficiary was under consideration, or in prospect. He was not advised until 2012 of the decision to remove him as a beneficiary.

(g) Until 2012, the applicant had no opportunity to obtain legal advice as to his exclusion.

(h) The applicant is unaware whether any real or genuine consideration was given to the exercise by the trustee of the power to remove him as a beneficiary. He is unaware whether there was an ulterior motive or improper purpose for the exercise of this power by the trustee. He does not know whether the trustee acted consistently with the purpose for which the trust was established when he was removed;

(i) Not having been informed of any reason in 1990 or subsequently for his removal as a beneficiary, the applicant has come to the belief that the trustee did act inconsistently with its duties when he was removed as a beneficiary; and

(j) The applicant believes that the trustee did act in bad faith, without real or genuine consideration, and contrary to the purposes for which the power was to be exercised by the trustee.

27 Other significant circumstances deposed to in the applicant's affidavit are:

(a) The applicant is the eldest son of Jan Schreuders, deceased and Kitty Schreuders. The applicant worked in the Grandiflora Nursery business from about 1956, when he was eight years of age before and after school, over weekends and holidays and on school days during peak flower sale times. He worked extended hours.

(b) When he was aged 21 years, he was appointed managing director of Grandiflora Nurseries.

(c) In October 1979, he separated from his first wife against the strong opposition of his father. He had two sons and one daughter by that marriage.

(d) The applicant's brother Harry was very close to their mother, Kitty. Harry did not work in the Grandiflora Nursery business to anything like the same extent that the applicant did.

(e) The applicant was dismissed by his father from the Grandiflora Nursery business on 3 March 1980, in the presence of a solicitor. The father was heard to say during a conversation on the following day with his solicitor that the applicant had left his wife and children and had no right to anything.

(f) There were subsequent court proceedings between the applicant, his father, the solicitor and the National Australia Bank Ltd commencing in 1982 and concluding six years later when the Full Court dismissed an appeal from the judgment of the trial judge.[16] The trial judge stated in his judgment that on matters of conflict he preferred the evidence of the applicant to that of other members of the family.[17]

(g) There were four unsuccessful attempts by the applicant to reconcile with his parents.

(h) Although he was the eldest son, the applicant was not named as a beneficiary in his father's will.

(i) All of the shares in Grandiflora Nurseries Pty Ltd, the operating company of the flower business were transferred to Harry Schreuders in 2002.

(j) The share held by Jan Schreuders in the trustee was transferred to Kitty Schreuders following Jan Schreuder's death in 1989. Harry Schreuders held the other share in the trustee. In 1990, the directors of the trustee were Harry Schreuders and Kitty Schreuders. The company secretary of the trustee was Harry Schreuders. The trustee reported in its annual return for 1990 that its assets were $239,027. In subsequent annual returns up to 1993, it variously reported its assets as between $1,800,000 and $2,062,827.

(k) Kitty Schreuders was a housewife. She had no involvement in running the Grandiflora business while the applicant was involved. She did not attend business meetings or meetings with advisers. The applicant says that she does not possess business acumen or have knowledge of commercial matters. He says that she was not a person who made independent decisions or had any past experience administering trusts.

28 The deed of variation shows that the applicant was removed as a beneficiary by the exercise by the trustee of the powers contained in clause 19 of the trust deed. Clause 19 does not in its terms confer an absolute or uncontrolled discretion on the trustee. It is subject to three express restrictions which may be summarised:

(a) it may only be exercised "in favour or for the benefit of the Beneficiaries or one or some of them";

(b) it is invalid to the extent that it purports to operate, or would otherwise operate, in favour of or for the benefit of the trustee, settlor or any person who has disposed of property to the trustee otherwise than for full consideration in money; and

(c) its exercise shall not affect the beneficial entitlement to any amount previously set aside for any beneficiary.

29 In addition to changing the schedule to the trust to exclude the applicant as a beneficiary of the trust, the deed of variation conferred on Harry Schreuders the powers of the specified person under the trust. As a result, Harry Schreuders in his absolute discretion controls the distribution of the corpus of the trust on the date of distribution.

30 This appeal is not an appeal de novo. For the trustee to establish grounds 4 and 6, it is essentially necessary for the trustee to establish in this appeal that it was not open on the evidence for her Honour to arrive at the conclusions that she did that the requirements of r 32.05 were satisfied. In my view, it was open to her Honour on the evidence that she had to arrive at the conclusion that she did, namely that there was reasonable cause to believe that the applicant may have the right to obtain relief from the trustee. Looked at afresh on the evidence before me, I would independently arrive at the same conclusion. In my view, the requirements of r 32.05 have been satisfied by the applicant.

31 While I have allowed some objections to various paragraphs of the applicant's affidavit, as set out above, this does not affect the conclusions to be drawn from the evidence as a whole. As I have said, the additional paragraphs now excluded as objectionable have no material effect on her Honour's reasoning and conclusions.

32 In my opinion, the facts proven by the applicant are such as to incline the mind towards the matter or fact in question, or at least are sufficient to reasonably induce the required inclination of the mind even if leaving something to surmise or conjecture.[18] As a result, it was open to her Honour to arrive at the conclusions that she did, as indeed I also do.

33 In sub-paragraphs 2(b) and 2(c) of the order, her Honour directed that the trustee give preliminary discovery of "any and all documents recording distributions paid by any trustee to each beneficiary of the [trust] from 1990 to present" and "any and all financial accounts of the [trust] from 1990 to present". This order would require preliminary discovery of documents over a period of almost 24 years, and was, I understand, ordered on the basis that the documents to be discovered might relate to the quantum of a possible claim by the applicant.

34 The relief to be sought by the applicant will principally be declaratory. The trustee submitted that the rights of objects of discretionary trusts are not classified as proprietary interests. Under a discretionary trust, it cannot be known whether anything will be receivable by a beneficiary until there has been an exercise of discretion in favour of applying the monies.[19] As Lord Keith of Kinkel put it in Pearson v Inland Revenue Commissioners,[20] a beneficiary under a discretionary trust has "no immediate right to anything". As a result, it does not follow that the restoration of the applicant as a beneficiary will confer on him a right to a monetary sum, or indeed any financial gain at all, other than the resumed status of beneficiary under the trust. Even if the applicant had been a beneficiary continuously since 1990, it does not follow that he would ever have received anything. He had a hope or possibility that he might receive something, but no vested interest nor certainty that he would ever benefit.

35 It is clear from paragraphs 3 to 6 of the applicant's affidavit that the principal reason why preliminary discovery is sought is to permit the applicant to make an informed decision as to whether he should commence a proceeding to challenge his removal as a beneficiary of the trust in 1990. Success in such a proceeding may lead to an order of the Court declaring the deed of variation to be invalid and of no effect. However, it does not follow that reinstatement of the applicant as a beneficiary in a discretionary trust would of itself lead to any further relief. Under clause 5(a) of the trust, the trustee has an absolute discretion to apply the income for the benefit of one or more of the beneficiaries to the exclusion of others. Under clause 6 of the trust, the trustee has the power in its absolute discretion to pay or apply the whole or any part of the corpus for the benefit of any one or more beneficiaries (and if thought fit for one or more to the exclusion of others or another). Whether the reinstatement of the applicant as a beneficiary might affect the distributions subsequently made by the trustees is a possible issue for a later occasion. The distributions were made under discretionary powers of a different nature from the power contained in clause 19.

36 In my view, it is not appropriate to order the trustee at this stage to provide documents recording distributions made by the trustee, or financial accounts of the trust, other than those which might conceivably provide some insight into the decision of the trustee in 1990 to exclude the applicant as a beneficiary. It is reasonable to conclude that no more than four years of documents recording distributions paid by the trustee to any beneficiary in and after 1990, and four years of financial accounts in and after 1990 will be sufficient to meet this purpose. It is not appropriate at this time to give the applicant access to documents recording distributions after 1993. There is little, if any, prospect that documents or accounts brought into existence after 1993 will cast any insight into the decision of the trustee in 1990 to remove the applicant as a beneficiary.

37 The appeal against the orders made in sub-paragraphs 2(b) and (c) will be allowed to the extent that each sub-paragraph will be modified to read "1990 to 1993 inclusive" in lieu of "from 1990 to present" where appearing in those sub-paragraphs.

38 My decision as to the preliminary discovery of documents recording distributions paid by the trustee to beneficiaries, and financial accounts relating to the trust is not intended to influence decisions as to discovery which may subsequently stand to be made in the event that a proceeding is issued. The extent of discovery will then stand to be determined having regard to the issues that are pleaded. Rather the resolution of this appeal is directed to the extent of preliminary discovery to be provided by the trustee at this stage having regard to the application presently made by the applicant and the facts proven in the applicant's affidavit.

39 In substance sub-paragraph 2(f) of the order for preliminary discovery directs the trustee to disclose any and all legal advice taken by the trustee before 1991 as to how to exclude or remove a beneficiary from the trust, and the circumstances or matters to be taken into consideration when excluding or removing a trustee from the trust.

40 The trustee appeals from the order on the ground that sub-paragraph 2(f) of the order requires it to disclose legal advice that would otherwise be subject to legal professional privilege.

41 In Avanes v Marshall,[21] Gzell J held that there was no entitlement as of right on the part of a beneficiary to the disclosure by the trustee of any document other than the trust accounts. His Honour undertook an analysis of authority in Australia and in the United Kingdom,[22] concluding that the decision of the Privy Council in Schmidt v Rosewood Trust Ltd[23] should be adopted by Australian courts.[24]

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.

43 His Honour concluded that the approach in Schmidt left it for the Court to determine to what extent information should be disclosed. Gzell J examined the documents on an individual basis coming to a conclusion as to whether or not each document should be disclosed by reference to their character, nature, contents and utility of the document in the hands of the beneficiary. More recently, in Silkman v Shakespeare Haney Securities Ltd, Hammerschlag J also adopted the approach taken in Schmidt.[26]

44 The issue of joint privilege arose in Schreuder v Murray (No 2).[27] Buss JA, with whom McLure JA agreed, said:[28]

Legal professional privilege may exist as a joint privilege. Joint privilege arises where two or more persons jointly communicate with a lawyer for the dominant purpose of obtaining or providing legal services (including giving or receiving legal advice or representation in legal proceedings). Similarly, joint privilege arises if one of two or more persons in a formal legal relationship communicates with a lawyer for the dominant purpose of obtaining or providing legal services (including giving or receiving legal advice or representation in legal proceedings) if the other person or persons share an interest in the subject matter of the services.

...

Persons entitled to joint privilege may not maintain the privilege against each other. They are together entitled to maintain their privilege against third parties. Waiver by one person is insufficient to affect the privilege of the other person or persons.

...

45 Pullin JA reached the same conclusion as Buss and McLure JJA and upheld the joint privilege. The Court held that the trustee and the beneficiary were both entitled to a joint privilege with respect to legal advice obtained by the trustee for the purposes of the administration of the residuary estate, and not for the benefit of the trustee personally.[29] It was not established by the trustee that the documents were brought into existence at a time when litigation between the trustee and the beneficiary was within the reasonable contemplation of the trustee.[30]

46 Joint privilege was claimed by a trustee in Krok v Szaintop Homes Pty Ltd (No 1).[31] Judd J rejected a claim for legal professional privilege upholding a beneficiary's submission that the advice sought and obtained by the trustee was in discharge of its obligation to administer the trust, and not for its personal benefit.[32] His Honour undertook a review of the documents in question, and observed:[33]

The trustee's evidence and submissions did not explain why the advice did not relate to the administration of the trust. Inspection of the documents indicated otherwise. To characterise advice as confidential from beneficiaries merely because it preceded action by the trustee is against the weight of authorities and contrary to logic. If the advice was sought for the purpose of assisting a trustee to discharge its duty to administer the trust, in contrast to advice sought and obtained for its personal assistance, any privilege subsisting in the advice is held jointly by the trustee and all beneficiaries. Presumably the trustee felt at liberty to reimburse itself from the trust assets for the cost of the advice. The evidence does not suggest otherwise.

Having reviewed the documents, I am persuaded that the advice contained therein and the instructions sought in relation thereto, were sought and given in connection with the administration of the trust. Accordingly, I find that any client legal privilege in the documents is held jointly by the trustee and beneficiaries, including Ms Krok.

The cases analysed by Buss JA in Schreuder do not distinguish between beneficiaries on the basis of their proprietary entitlement to trust documents when recognising the beneficiary's right of access to legal advice obtained by the trustee. There does, however, appear to be some differences in approach. For example, in O'Rourke v Darbishire, Wrendbury LJ said that the beneficiaries' right of access had nothing to do with the fact that the demand for inspection had been made in the course of litigation. His Lordship said that the right to discovery is a right to see someone else's documents. On the other hand, Salmon LJ in Re Londonderry's Settlement drew a distinction between a beneficiary seeking disclosure 'in the air' and the right of access in discovery.

47 I am of the view that it is appropriate to 'wait and see' whether following the provision of preliminary discovery any legal advice was actually obtained by the trustee prior to 1991, and then to see whether any claim for privilege is made by the trustee. It will then be necessary to decide on any claims for privilege on a document by document basis. In Schmidt v Rosewood Trust Ltd, it was held that courts may have to balance the competing interests of different beneficiaries, the trustees themselves and third parties.[34]

48 It is likely that a claim for legal professional privilege by the trustee will be met by the applicant with the response that the advice related to the administration of the estate and therefore must be disclosed to the applicant, a beneficiary of the trust, on the basis that a beneficiary is jointly entitled to the privilege with the trustee. Any claim for joint privilege will stand to be resolved at the same time as the trustee's claim for privilege.

49 Claims for privilege, and joint privilege can only be approached on a document by document basis. Only if the document is identified and, if necessary, inspected by the court can it be discerned whether the advice given was advice relating to the administration of the estate, or personal legal advice given to the trustees in reasonable contemplation of litigation.

50 It is appropriate to allow ground 7 of the appeal to the extent necessary to provide a process whereby claims for privilege if advanced by the trustee, and claims for joint privilege if advanced by the applicant can be determined by the court.

51 I will add to the orders made by her Honour an order to the effect that if any documents required to be produced by the trustee to the applicant under sub-paragraph 2(f) of the order are claimed to be the subject to legal professional privilege, the trustee shall in lieu of providing the documents provide a list of the documents, stating the nature and date of each document and giving the reason why privilege is claimed in relation to that document.

52 The result is the appeal will be allowed in part. Sub-paragraphs 2(b) and (c) will each be modified so that the years "from 1990 to 1993 inclusive" will be substituted for the years "from 1990 to present" where appearing in those sub-paragraphs. A new sub-paragraph 2(h) shall be added to the order which reads:

(h) In the event that the Defendant claims that one or more documents as to which preliminary discovery is ordered under (f) above is the subject of legal professional privilege the Defendant shall in lieu of providing the documents to the Plaintiff provide the Plaintiff with a list of the documents said to be the subject of legal professional privilege identifying each document, stating its nature and date or approximate date if undated, and giving the reason why privilege is claimed in relation to that document.

53 Liberty to apply will be granted to permit any dispute as to privilege to be resolved by an Associate Justice. Claims for joint privilege can be determined at the same time as claims for privilege. I will hear from Counsel as to the form of the orders proposed and as to costs.

[1] Schreuders v Grandiflora Nominees Pty Ltd (as trustee of the Schreuders Family Settlement) (Unreported, Supreme Court of Victoria, Zammit AsJ, 20 March 2014) ('Reasons').

[2] See Oswal v Carson [2013] VSC 355 [11] (Ferguson J); Boral Resources (Vic) Pty Ltd v CFMEU [2014] VSC 120 [10] (Digby J); and EWC Payments Pty Ltd v Commonwealth Bank of Australia [2014] VSC 207 [12] (Elliott J).

[4] [1984] VicRp 13; [1984] VR 161.

[9] [2007] VSC 318 [17].

[10] [2008] VSC 338.

[11] [1984] VicRp 13; [1984] VR 161.

[12] Curwen v Vanbreck Pty Ltd [2009] VSCA 284; (2009) 26 VR 335 (Redlich and Bongiorno JJA and Hansen AJA).

[13] Ibid 352 [42], 354 [48]-[49] (footnotes omitted).

[14] [1984] VicRp 13; [1984] VR 161.

[15] See, eg, Esso Australia Ltd v Australian Petroleum Agents' and Distributors' Assn [1999] 3 VR 642, 651-2 [39] [1999] 3 VR 642 (Hayne J); and Asea Brown Boveri Superannuation Fund No 1 Pty Ltd v Asea Brown Boveri Pty Ltd [1999] 1 VR 144, 155-7 (Beach J).

[16] Schreuders v Schreuders & Ors (Unreported, Full Court of the Supreme Court of Victoria, O'Bryan, Marks and Southwell JJ, 21 June 1988).

[17] Schreuders v Hardy & Ors (Unreported, Supreme Court of Victoria, Fullagar J, 26 June 1987) 10a-11a.

[18] Plzen Pty Ltd v P&O Wharf Management Pty Ltd [2007] VSC 318 [17].

[19] Re Goldsworthy deceased [1969] VicRp 107; [1969] VR 843, 849 (Smith J).

[20] [1981] AC 753, 786.

[21] [2007] NSWSC 191; (2007) 68 NSWLR 595, 599 [15].

[22] Re Londonderry's Settlement [1965] 1 Ch 918; O'Rourke v Darbishire [1920] AC 581; Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405; Rouse v IOOF Australia Trustees Ltd [1999] SASC 181; (1999) 73 SASR 484; and Schmidt v Rosewood Trust Ltd [2003] UKPC 26; [2003] 2 AC 709; and Spellson v George (1987) 11 NSWLR 300.

[23] [2003] UKPC 26; [2003] 2 AC 709.

[24] [2007] NSWSC 191; (2007) 68 NSWLR 595, 599 [15].

[26] [2011] NSWSC 148 [27].

[27] [2009] WASCA 145; (2009) 41 WAR 169.

[28] Ibid 185-6 [64]-[65] (citations omitted).

[29] Ibid 175 [10] (Pullin JA), 194 [95] (Buss JA).

[31] [2011] VSC 16.

[33] Ibid [31]-[33] (footnotes omitted).

[34] [2003] UKPC 26; [2003] 2 AC 709, 734-5 [67] (Lord Walker of Gestingthorpe).