Avanes v Marshall & Ors [2007] NSWSC 191 | Case summary

3585/04 SUZANNE GWENDOLINE AVANES v MARGARET SYLVIA MARSHALL & ORS EX TEMPORE JUDGMENT 1 In the course of discovery, the first and second defendant trustees of a testamentary settlement claimed client legal privilege with respect to certain documents numbered 1 to 3 and 5 to 10. 2 The plaintiff challenged the claim on the principal basis that the documents were trust documents in which the plaintiff had a proprietary interest. Re: Londonderry's Settlement [1965] 1 Ch 918 was relied upon. Aspects of that case were over-ruled by the Privy Council in Schmidt v Rosewood Trust Ltd [2003] 2 AC 709 and I invited further submissions on the impact of that decision. 3 The general rule that a beneficiary has a right at all reasonable times to inspect trust documents is generally attributed to Re Cowin (1886) 33 Ch D 179. In that case a cestui que trust sought a declaration of entitlement to inspect all the deeds, papers and documents relating to the property subject to the trusts of the will. North J expressed the view at 185 that the plaintiff had a prima facie right to inspect the deeds because the cestuis que trust were the beneficial owners of the trust property. 4 Significantly, the general rule did not apply to documents concerning the reasons for the exercise of a trustee's discretion. 5 In Londonderry the trustees had determined to exercise their power of disposing of the capital of the trust thereby bringing a settlement to an end. A beneficiary sought copies of various documents related to that determination. On appeal, their Lordships expressed themselves in the alternative and the ratio decidendi of the case is not easy to discern. Harman LJ at 933 took the view that since trustees are not required to disclose their reasons for a decision, the documents in question should not be disclosed because they would reveal those reasons. However, his Lordship went on to posit a different basis for excluding such documents from disclosure. He said they were not trust documents and thus not documents in which the beneficiary had any interest. Danckwerts LJ at 935 expressed a similar view. The documents were not trust documents or, if they were, they should be excluded from disclosure as revealing the trustees' reasons. Salmon LJ at 937-938 also approached the problem from two points of view. First, if the documents were trust documents, those portions disclosing the trustees' reasoning should not be disclosed. Secondly, the documents were not trust documents to which the beneficiaries were entitled to access. 6 In O'Rourke v Darbishire [1920] AC 581 at 626-627, Lord Wrenbury put the right to information on the basis that a beneficiary with a proprietary interest in the trust had a right of access to trust documents as his documents. 7 In Australia, a different view was formulated. Spellson v George (1987) 11 NSWLR 300 concerned a father seeking information on his own account and on account of his children about settlements made by members of his recently divorced wife's family. Powell J expressed the view that a person who was but a potential object of the exercise of discretionary power could properly be regarded as a beneficiary for the purpose of the right to have the trust property properly managed and to have the trustee account for that management. 8 In Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405, a discretionary trust was settled with $10 by a friend of the instigator. The instigator greatly augmented the fund during his lifetime. The trust was in favour of eligible beneficiaries. That class was defined to include grandchildren of the instigator. The respondent to the appeal was a grandchild. The instigator signed a memorandum of wishes that he gave to the trustees. The grandson sought access to the memorandum. The majority of the Court of Appeal concluded that the document was not one the trustees were obliged to disclose to the beneficiary. Mahoney JA at 437 regarded the memorandum as directed to matters of administration of such a kind that the document was not, in the relevant sense, part of the property of the trust and also because it was likely to have been given upon a confidential basis. Sheller JA at 446 concluded that since the memorandum of wishes was not attached to the trust deed but delivered separately to the trustees, it was the intention of the instigator and of the settlor that it should remain confidential and the trustees were bound not to disclose its contents. In his dissenting judgment, Kirby P at 421-422 criticised the notion that a beneficiary's entitlement to trust documents was based upon a proprietary interest and adopted a view in academic writings that a trustee's duty of disclosure arose from the fiduciary duty to keep a beneficiary informed and to render accounts. Sheller JA at 444 said that an enquiry as to whether or not a beneficiary had a proprietary interest was: "if not a false, an unhelpful trail". 9 In Rouse v IOOF Australia Trustees Ltd (1999) 73 SASR 484, the appellants were investors in a managed investment scheme as beneficiaries of a trust of which the respondent was trustee. The trustee had commenced proceedings against the scheme manager. The appellants had sought the appointment of an inspector of the trust and sought disclosure to them of documents forming part of the trustee's brief to counsel in the proceedings it had instituted. The Judge at first instance took the view that the proceedings could be determined by the answer to a question of law: whether the mere fact that the appellants were beneficiaries of the relevant trust gave them a right to inspect the documents in question. In refusing access to the documents, the judge concluded that the mere assertion of their status as beneficiaries did not give the appellants the right to inspect the documents in question. The Full Court, in dismissing the appeal, found it unnecessary to determine the basis upon which disclosure was available for whether the beneficiary's right to access was founded upon a proprietary right or a fiduciary duty, it was not unqualified and confidentiality or legal professional privilege were circumstances in which a discretion to refuse inspection might arise. 10 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. 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." 11 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. At 730, Lord Walker suggested that in Londonderry and more recent cases, including the Australian decisions of Spellson, Hartigan and Rouse, the courts have begun to work out in detail the way in which the court should exercise its discretion. 12 Schmidt has been referred to in Australia on a number of occasions: in Gray v Guardian Trust Australia Ltd [2003] NSWSC 704, in Crowe v Stevedoring Employees Retirement Fund [2003] VSC 316, in CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 224 CLR 96, in Yates v Halliday [2006] NSWSC 1346 and in Trevorrow v State of South Australia (No 4) (2006) 94 SASR 64. 13 In Crowe, a retired stevedore entitled to benefit under a formula that included as an element a classification base wage, sought information as to the trustee's increase of that element. Balmford J concluded that, however inappropriate, Londonderry applied in Australia and applied to a superannuation scheme. However, her Honour took the view that the information in question did not reveal the reasons for any decision of the trustee and should be provided. 14 It seems to me, however, that the approach adopted in Schmidt requires a reappraisal of Londonderry. For example, in discussing the balancing exercise that the court must undertake, Lord Walker highlighted the significance of prospective entitlement of an applicant to benefit under a trust, whereas in Londonderry it was assumed that access to trust documents was limited to beneficiaries with proprietary interests. Further, the decision in Londonderry proceeded on the basis that there is an entitlement to inspection of trust documents subject to exceptions, whereas the reasoning in Schmidt concluded that there is no right to inspection of trust documents and it is for the court to decide whether inspection should be granted by balancing competing interests. 15 In my view, the approach in Schmidt should be adopted by Australian courts. The decision should not be regarded as abrogating the trustee's duty to keep accounts and to be ready to have them passed, nor the trustee's obligation to grant a beneficiary access to trust accounts. But when it comes to inspection of other documents there should no longer be an entitlement as of right to disclosure of any document. It should be for the court to determine to what extent information should be disclosed. I propose to adopt that approach in determining this application. 16 The documents in question fall into two categories - correspondence between the barrister and the solicitors for the trustees and correspondence between the solicitors for the trustees and accountants. 17 It is submitted that the balancing exercise required by Schmidt favours disclosure to the plaintiff, the life tenant under the settlement. The remainderman is the third defendant, the infant daughter of the plaintiff. The plaintiff has expended monies on the property and the trustees have sought advice as to how that expense should be reflected in the trust accounts. The life tenant has requested the trustees to acquire a more expensive property under a power to do so under settlement. If exercised, it will reduce the value of the remainderman's estate. There are also questions about the payment of taxes and whether the plaintiff's husband can take an interest in the property, if acquired. The substantive proceedings allege breaches of trust by the trustees. 18 The plaintiff submits that the documents should be made available for inspection because she sues for various breaches of trust and must overcome a defence of acquiescence or consent. It is submitted that there is no evidence of personal or commercial confidentiality nor of a conflict between the exercise of discretion in favour of the life tenant to the prejudice of the remainderman. It is submitted that the third defendant has adopted a submitting role to her mother and the plaintiff sues for their joint benefit. It is submitted that there is no evidence that documents 2 to 3 and 5 to 10 are other than accounting documents for which the estate appears to have borne fees. It is submitted that the balancing process must be determined on the merits and not by reference to procedural matters such as the requirements under the Evidence Act 1995. It is submitted that only documents that indicate the reasoning process of the trustees are to be withheld and documents upon which that reasoning process is based should be made available for inspection. 19 The trustees submit that the court should, in its inherent jurisdiction of supervision of the administration of trusts upon which the decision in Schmidt is based, protect the trustees' confidential dealings with the legal and accounting advisers. It is submitted that there is no evidence that the plaintiff is suing for the benefit of the third defendant. The third defendant is separately represented by a tutor and her interests are adverse to those of her mother. 20 The trustees have provided copies of the documents to the court for its inspection under the Uniform Civil Procedure Rules 2005, r 1.8 and submit that the court should make its own determination based upon its perusal of the documents. It is submitted that the documents are confidential and have come into existence for the benefit of the trustees for making determinations about the due administration of the estate and the creation of documents that may ultimately become trust documents. The legal opinion of counsel was accepted to be a trust document and was made available for inspection. 21 Having perused the documents I am of the view that the first document in item 1 is a confidential communication by barrister to solicitor for the personal guidance of the trustees and should not be disclosed. The other document accompanied the opinion of counsel and, again, was for the personal guidance of the solicitors and should not be disclosed. In my view the documents do not relate to the exercise of any discretion or power the trustees possess under the settlement. Having no relevance to any discretion or power, the interests of the trustees in keeping confidential communications between their solicitors and counsel outweigh any requirement of openness between the trustees and the life tenant. 22 In Armitage v Nurse [1998] Ch 241 at 253-254, Millett LJ said there are irreducible trust obligations, and at 261 he indicated that the result of one such obligation is that every beneficiary is entitled to trust accounts. 23 In my view, those principles are unaffected by the decision of Schmidt. But the documents numbered 2 to 3 and 5 to 9 are preparatory to the preparation of the trust accounts. They comprise requests for advice by the accountants of the solicitors on matters of law and advice by the accountants to the solicitors on matters of accounting affecting the presentation of the accounts and the presentation to the solicitors of draft accounts and explanations of how they were compiled. 24 In my view, these documents go to the deliberations of trustees. This includes the accountants' presentation of a reconciliation of work undertaken for consideration by the trustees in arriving at a decision as to what fees should be paid. Again for deliberation and not as part of the final accounts. 25 Since deliberations by the trustees precede their determination to have trust accounts drawn up, I see the balancing process as coming down in favour of protecting the trustees from scrutiny of their deliberations leading up to the drawing up of the accounts. That part of their administration should not become the subject of a fishing expedition by beneficiaries. 26 In my view, none of the documents is discoverable under the principle in Londonderry excluding from inspection the reasoning process of the trustees or under the balancing process enunciated in Schmidt. 27 With respect to the documents numbered 1, there is also a claim for disclosure under the Evidence Act 1995, s 122 (1). 28 Client legal privilege in court proceedings is set out in Div 1 of Pt 3.10 of the Evidence Act 1995. Section 118 excludes the adducing of evidence of confidential communications between client and lawyer. It provides, so far as is relevant for present purposes: "Evidence is not to be adduced if, on objection by a client, the court finds that adducing the evidence would result in disclosure of: (a) a confidential communication made between the client and a lawyer." 29 Section 122 of the Evidence Act 1995 provides exceptions to this rule where a party consents to the adducing of the evidence, or the substance of the communication has been disclosed, or the document is used to refresh memory. So far as is relevant for present purposes, s 122 (1) is in the following terms: "This Division does not prevent the adducing of evidence given with the consent of the client or party concerned." 30 In Adelaide Steamship Co Ltd v Spalvins (1998) 81 FCR 360 at 370-371 a Full Court of the Federal Court saw no reason for construing consent in s 122(1) of the Evidence Act 1995 as referring only to express consent notwithstanding the contract with s 122(4) where reference is made to express or implied consent. In Telstra Corporation Ltd v BT Australasia Pty Ltd (1998) 85 FCR 152, a majority of a Full Court of the Federal Court cited this observation and also concluded that the reference to consent in s 122(1) included the implied consent of an imputed waiver of privilege. Their Honours said at 164: "But, unless "consent" has a meaning more extensive than actual, voluntary consent, it is difficult to see what s 122(1) adds to the opening words of s 118. And it may be observed that if s 122 (1) of the Act is construed as being concerned only with intended or voluntary consent, Div 1 of Pt 3.10 of the Act will have effected a dramatic change to the pre-existing common law with respect to legal professional privilege". 31 As I said in Chen & Ors v City Convenience Leasing Pty Ltd & Anor [2005] NSWCA 297 at [31], in my view that interpretation must be correct. Section 9(1) of the Evidence Act 1995 provides that the Act does not affect the operation of a principle or rule of common law or equity in relation to evidence in a proceeding to which the Act applies, except so far as the Act provides otherwise expressly or by necessary intendment. It would take more than the reference to implied consent in s 122(4) to exclude, by necessary intendment, implied consent from the reference to consent in s 122(1). 32 In Mann v Carnell (1999) 201 CLR 1 at [29], the High Court stated the principle of implied waiver in terms of conduct inconsistent with the maintenance of confidentiality: "Waiver may be express or implied. Disputes as to implied waiver usually arises from the need to decide whether particular conduct is inconsistent with the maintenance of the confidentiality which the privilege is intended to protect. When an affirmative answer is given to such a question, it is sometimes said that waiver is "imputed by operation of law" (eg Goldberg v Ng (1995) 185 CLR 83 at 95). This means that the law recognises the inconsistency and determines its consequences, even though such consequences may not reflect the subjective intention of the party who has lost the privilege."

Avanes v Marshall & Ors

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