Corporation v Plaintiffs

2 It became clear only from the plaintiffs' amended statement of claim dated 14 February 2007 that the s.247A claim (which had been present from the time of the filing of the originating motion on 24 November 2006 seeking access to documents under both s.247A and the common law) had been abandoned. Mr Herskope submits that the defendant, as a trustee, is in a special position and that there are aggravating factors and circumstances which justify an award of costs against it on an indemnity basis. The litigation, he said, could and should have been entirely avoided and resistance to the beneficiary's request was completely unnecessary and unjustified.

3 Mr Herskope also submitted that when the s.247A application was viewed in context, there was a complete overlap with the equitable claim, and the plaintiffs were, as the matter had developed, justified in bringing the s.247A claim and acted responsibly in abandoning it, as they did on 14 February 2007.

4 Mr Solomon, counsel for the defendant, in contrast, argued first that the defendant should pay only some of the costs of the equitable claim, and on a party-party basis only. He argued that the unnecessary material, superfluous claims and confusion which attended the plaintiffs' pleadings and material in support justified that approach. Mr Solomon also argued that Mr Khor ought to pay the defendant's costs of the abandoned s.247A proceeding.

5 Mr Solomon conceded that the approach adopted by the trustee's solicitors when these requests were made (which have now largely been fulfilled on a consent basis) should have been different. It was incorrect, and did not give effect to the equitable principles which apply in this area. Nevertheless, he said that this was not unusual. Many claims are brought which are ultimately unsuccessful; it is in the nature of litigation. After the initial letters of refusal, the trustee's approach had no relevant effect on the litigation, such as to justify an award of indemnity costs.

7 In relation to the indemnity costs issue generally, Mr Solomon also said that an award of indemnity costs in this application would mean that the Court was necessarily adopting a view that trustees, who have refused a request for access to documents, and are subsequently unsuccessful in litigation, have a special status, which attracts indemnity costs; but that is not reflected, he said, in the decided cases.

8 I am unaware of any case in which an inflexible rule based on the trustee's status has been applied.

9 While I do not adopt an inflexible rule based on the trustee's status, I am of the view that (subject to a qualification, which I will mention later), in this case, the trustee ought to pay some of the costs of the equitable access claim on an indemnity basis. That is because I take the view that the cases clearly establish that, absent special circumstances (which the trustee bears the onus of establishing) a trustee who is requested to provide access to trust documents ought, prima facie, to provide such access.[1]

10 That principle has been variously explained. First, by reference to a proprietary interest of the beneficiary in the trust documents.[2] That is now, I think, generally viewed as an oversimplified analysis and the prima facie obligation of the trustee to provide the access is currently seen as an emanation of the general doctrine that trustees are fiduciaries with a peculiarly high obligation to account and to provide information. In Rouse v IOOF Australia Trustees Ltd,[3] Doyle J considered that the right to access could be based not on a literal proprietary interest in trust documents, but arose because the beneficiaries have a beneficial interest in the trust property (as Dawson and Toohey JJ stated in Breen v Williams[4]). In Hartigan Nominees Pty Ltd v Rydge,[5] the entitlement was seen as being based on the trustee's fiduciary duty to keep the beneficiaries informed, and to render accounts.

11 In Schmidt v Rosewood Trust Ltd,[6] the Privy Council described the entitlement as an aspect of the Court's inherent jurisdiction to supervise and, where appropriate, intervene, in the administration of trusts.

12 In Jacobson v Dafna Nominees Pty Ltd ("Jacobson"),[7] Ashley J (without having to decide the point) considered the position of a beneficiary with a potential collateral purpose in seeking access to trust documents. In that case, after all beneficiaries of a family discretionary trust had agreed upon a final resolution, and a final distribution had been made on that basis, a secondary beneficiary (who was in a long-term dispute with his brother, the director of the corporate trustee) demanded the production of a number of specified documents (the trust deed, bank account records, bank statements and tax returns) in order to see what had become of the trust fund. His doubts on that matter were recent and he had agreed to the final distribution. It was accepted that the applicant beneficiary had not asked for an accounting during the long subsistence of the family trust and had a provocative relationship with the "trustee" brother. Ultimately, Ashley J did not accept that the application was for a collateral purpose of harassment, or constituted an abuse of process. His Honour thought that there were some questions concerning the trust and probably a genuine desire to see the documents. Although, in Jacobson, the defendants failed to make out the collateral purpose, Ashley J considered that it might, in some cases, justify a denial of access to trust documents.

13 His Honour noted that the hearing was conducted on the assumption that a beneficiary (even of a discretionary trust) has a prima facie right to inspect trust documents. He was satisfied that that proposition was supportable.

14 Ashley J gave two reasons justifying the proposition:

1. First, the cases recognise that some potential beneficiaries of discretionary trusts have the right generally to be informed, at their own expense, of the accounts and contents of the trust documents;

2. Secondly, the right of beneficiaries to access trust documents is not based on an equitable proprietary right in those documents, but on the fiduciary duty of the trustee to inform and account to the beneficiary.

15 In addition to collateral purpose and abuse of process, other special factors which might exclude the obligation to provide the access include privilege, confidentiality and arguments that the documents cannot be provided because it would not be in the interests of the beneficiaries as a whole, or because they do not exist.

16 The trustee must provide some kind of explanation. In this case, it did not do so. Based on the correspondence exhibited to affidavits and the claims actually made in the litigation, it seems that the trustee has never alleged that there was any valid, recognised reason for withholding access. Mr Solomon submitted that I ought not to have regard to the approach which was adopted after the initial letters, but I am of the view that the litigation was not only begun, but was continued, when, on the basis of all the evidence, it was hopeless, as regards the access claim at least.

17 Therefore, without applying any hard and fast rule about trustees in these kinds of cases, I think that this is a case where, in terms of Redlich J's observations in Aljade Development & Construction SDN BHD v Richfield Investments Pty Ltd,[8] there was an extended and dismissive refusal to recognise the plaintiffs' claims or there has been the pursuit of a claim which cannot succeed when its futility had been drawn to the attention of the losing litigant. In the present case, it can be said that the futility of resistance to the plaintiffs' claim to access had been drawn to the attention of the defendant. The resistance was futile. No evidence was adduced nor any submission raised, which would have justified declining to give access.

18 An award of costs on an indemnity basis is therefore justified in the circumstances of this case. The second question is what proportion of the costs of the equitable access claim should the defendant bear (I do not deal yet with the s.247A claim).

19 Although the plaintiffs should not have been obliged to litigate in order to obtain access to the documents, once litigation commenced, they were still obliged to maintain discipline and conformity to the rules of litigation as to relevant material, and properly to plead and to alert the other party to what was being claimed.

20 I accept Mr Solomon's contention that in this matter, over and above the substantive constant of the access complaint, there were red herrings both in the pleaded case and in the material relating to the complaints about the quality of the accounts and the breaches of specific terms of the trust deed. In substance, the complaints that the defendant made in the strikeout application were justified.

21 It was clear that the plaintiffs were seeking access to documents, but it was not clear what else they were chasing. I accept that this may well have put the defendant to expense and that it would not be just for the defendant to bear the cost of all the material in relation to those other claims. Doing the best I can, I think a discount of 25 per cent is justified. I proceed on the basis that there is no evidence that the defendant had any malicious or ulterior motives in this matter. Further, the defendant is to be commended, rather than otherwise, for not subjecting the Court and the parties to a substantive contest.

22 In relation to the s.247A claim, Mr Herskope submitted that it totally overlapped with the equitable claim and that, in all the circumstances, it was not irresponsible of the plaintiffs to bring it and it was responsibly abandoned. Mr Solomon submitted that there was not a complete overlap between the s.247A claim and the equitable claim. He took me to some of the exhibits of Mr Darren Noble's affidavit of 23 November 2006, which appeared to relate exclusively to the s.247A claim and to several letters included in the parties' correspondence, where separate reference was directed to the s.247A claim.

23 He complained, validly, I think, that the plaintiffs never made clear that they were not separately pursuing and persisting in the s.247A claim until 14 February 2007 when the plaintiffs filed and served the amended statement of claim. I have been informed from the Bar table, although there is no evidence before me, that the trustee does not have much function other than as a trustee, and, in all likelihood, there will be a substantial overlap as to the material sought. I am not in a position, however, to dismiss the defendant's assertion that it made separate preparation for the s.247A claim.

24 I note that there was never any proper material in support of the s.247A claim; nor was it properly pleaded in the pleading which was the subject of the defendant's strikeout application. There has been a fairly late abandonment of the s.247A claim, without any explanation. Therefore, although it is doubtful that the defendant's costs of the s.247A claim will be substantial, it is just that they be paid by the second plaintiff, Mr Khor.

[1] Re Fairbairn [1967] VicRp 72; [1967] VR 633.

[2] Re Fairbairn [1967] VicRp 72; [1967] VR 633.

[3] [1999] SASC 181; (1999) 73 SASR 484

[5] (1992) 29 NSWLR 405.

[6] [2003] UKPC 26; [2003] 2 AC 709.

[7] [1999] VSC 529.

[8] [2004] VSC 351.