Mandie & Anor v Memart Nominees Pty Ltd [2014] VSCA 181

1 Edward Nicholas Mandie and Nicholas Elliott Mandie ('the applicants') are members of a class of general beneficiaries of the David Mandie Family Trust, a discretionary family trust ('the trust'). Memart Nominees Pty Ltd ('the respondent') is the trustee of the trust.

2 As members of a class of general beneficiaries of the trust, the applicants are persons whom the trustee may, in its absolute and uncontrolled discretion, appoint to receive income or capital distributions from the trust. Since the time of the settlement of a family dispute in 1995, the applicants have not received any distribution from the trust. In August 2013, the applicants filed an originating motion seeking the following relief:

1. An order that the [respondent], by its proper officer, provide the following information, verified by affidavit, in respect of the years ended 30 June 2007, 30 June 2008, 30 June 2009, 30 June 2010, 30 June 2011, 30 June 2012 and 30 June 2013:

(a) For the purposes of deciding whether or not to distribute any income of the David Mandie Family Trust to each [applicant]:

(i) what information did the [respondent] have concerning the personal or other circumstances of each [applicant]; and

(ii) from whom did the [respondent] obtain that information.[1]

3 On 20 June 2014, following a trial of the proceeding, Macaulay J dismissed the proceeding.[2] On 9 July 2014, his Honour ordered the applicants to pay the respondent's costs of the proceeding, excluding the costs of certain written submissions on costs, such costs to be taxed on a standard basis.

4 On 15 July 2014, the applicants attempted to file a notice of appeal against the order made on 20 June 2014. The Registry refused to accept the notice of appeal for filing on that day on the basis that the notice of appeal was out of time.[3] By summons filed 16 July 2014, the applicants seek an extension of time within which to file and serve their notice of appeal. The application for an extension of time is opposed by the respondent. This is the hearing of the applicants' application and, if time is extended, the hearing of the applicants' appeal.

5 In July 2012, the applicants, by their solicitors, requested that the respondent provide them with access to certain books and records relating to the trust. Access to such books and records, including the minutes of the directors' meetings of the trustee and the financial records for the trust for the six years up to 2011, was provided.

6 By letter dated 29 April 2013, the applicants' solicitors wrote to the respondent's solicitors stating:

In the letter of 29 October 2012 we explained that the principal reasons for seeking access to the documents were to ascertain:

what matters the Trustee took into account when making its annual decision to distribute Trust income; and more particularly,

to what extent, if at all, the Trustee considered our clients when deciding how the trust income should be distributed.

None of the documents produced even hint at the possibility that the Trustee had any regard to our clients when making its distribution decisions.

...

As we have said, it seems to be a reasonable inference that the Trustee has acted in breach of its duties and, therefore, is liable to be removed from office. We acknowledge the possibility that the trust documents are deficient and do not fully explain the reasons behind the Trustee's distribution decisions. If that be so, it is in both the Trustee's and the beneficiaries' best interests that the reasons be provided to our clients.

7 By letter dated 9 May 2013, the respondent's solicitors replied to the applicants' solicitors' letter in these terms:

Your letter asserts that the documents produced by Memart Nominees Pty Ltd (the Trustee) do not indicate that the Trustee has had regard to your clients when making distribution decisions (the first assertion). It is then alleged that there are grounds to remove the Trustee because, as a matter of inference, the Trustee has not informed itself of the situation of each beneficiary and has not given real and genuine consideration to those respective situations (the second assertion). We reject both assertions.

...

In the circumstances, we reject the first assertion. Distributions made by the Trustee have been in accordance with the true purpose of the Trust. This is reflected in the financial reports and you may already be aware of this. Indeed, it is clear from the documents provided to you that distributions have not been made to family members, other than Mr David Mandie, during the period in question. It is also wrong to allege that the Trustee has not considered the situation of your clients when making these distributions. Within the constraints of the strained family relationship, the Trustee has made efforts to familiarise itself with the personal circumstances of each beneficiary despite the wide discretion conferred by the Deed.

8 That letter was met with a request from the applicants' solicitors for further information, as set out in their letter dated 3 June 2013:

For the time being we are prepared to accept that tensions within the family may have made it difficult for the Trustee to obtain the type of information it was required to obtain before making a distribution decision, although it is by no means self-evident that anything really stood in the way of the Trustee obtaining the relevant information.

One of the most important duties of a trustee is to provide to its beneficiaries information about the trust not otherwise available from the trust documents. There are limits to this duty. We accept that a trustee is not usually required to provide information explaining how it exercised its broad discretionary powers. Nonetheless, however broad a trustee's powers may be, beneficiaries are entitled to know the basis upon which (as distinct from the reasons why) the trustee acted as it did.

Our clients therefore seek from the Trustee information which justifies your statement that 'the Trustee has made efforts to familiarise itself with the personal circumstances of each beneficiary'. Another reason for seeking this information is to establish that the Trustee exercised its discretion 'upon a real and genuine consideration of the matter entrusted to the trustee's discretion'.

The particular information which we seek from the Trustee is the following:

(1) what enquiries did the trustee undertake to familiarise itself with the personal circumstances of each beneficiary (including our clients);

9 The applicants' request for further information was met with the following response, set out in a letter from the respondent's solicitors dated 17 June 2013:

The directors of the Trustee of the David Mandie Family Trust reside in Melbourne, as do the beneficiaries of the Trust. As your clients are aware, the directors and beneficiaries have many mutual friends and acquaintances. Through discussions with those friends and acquaintances and informal, social inquiries, the directors have at all times had an awareness of the circumstances of the beneficiaries. In addition, knowledge of those circumstances has been provided through social media, on which most if not all of the beneficiaries have a presence.

Of course, your clients are always welcome to provide to the Trustee further information regarding their financial position and sources of income, such as tax returns for the last three years.

10 At trial, the respondent contended that it was not required to provide the information sought, as the information was protected by the principle identified in Re Londonderry's Settlement;[4] alternatively, by the operation of clause 17 of the trust deed. Clause 17 of the trust deed relevantly provides:

Without prejudice to any right under the general law of the Trustees to refuse disclosure of any document it is hereby declared that the Trustee shall not be bound to disclose to any person any of the following documents that is to say -

(a) any document disclosing any deliberations of the Trustee (or any of them) as to the manner in which the Trustee should exercise or have exercised any power or any discretion conferred upon the Trustee by this Settlement or disclosing the reasons for any particular exercise of any such power or any such discretion or the material upon which such reasons shall or might have been based ... .[5]

11 At trial, the applicants contended that they were entitled to the information they sought on the basis that:

(a) First, they were not seeking to require the trustee to disclose or explain its reasons for the exercise of its discretion not to make any distributions in favour of each applicant; rather, they were merely seeking information available to the trustee as to the basis upon which (as distinct from the reasons why) it made its decision); and

(b) Secondly, if it were concluded that the applicants were in fact seeking the trustee's reasons for the exercise of its discretion, then the applicants were entitled to those reasons because the trustee had sufficiently embarked upon giving its reasons so that it had waived the usual immunity from disclosure, thereby opening itself up for examination.

12 The judge, after conducting a detailed review of the relevant authorities, rejected the applicants' contentions. In rejecting the first contention, the judge said:

[I]n my view the distinction that the plaintiffs seek to draw is illusory: that is, the distinction between the subject matter of the reasoning protection afforded to trustees, on the one hand, and 'mere information' as to the basis upon which the trustee acted (or that was available to the trustee for the purpose of exercising its discretion) on the other. It is clear that the protection afforded by the principle in Londonderry's Settlement, adopted by the Australian authorities, extends to the very kind of information that the plaintiffs seek. That is made clear by the terms of the order made by the English Court of Appeal which expressly excluded from disclosure documents disclosing 'the material upon which such reasons were or might have been based'.

Not only are such documents immune from disclosure under the terms of the Londonderry's Settlement principle, but in this case they are also protected from disclosure by the express terms of the trust deed in identical language. It is notable that the scope of the protection extends to material upon which the reasons 'might' have been based.[6]

13 In rejecting the applicants' second contention, the judge said:

In this particular case, I am not satisfied that the trustee's statement that it made efforts to familiarise itself with the plaintiffs' personal circumstances was a sufficient disclosure to engage the exception (assuming it applied). Rather, the statement amounted to little more than repeating in generic terms the duty applicable to the trustee.

When it subsequently identified some potential sources of information, albeit vague and general, particular to the plaintiffs, it travelled closer to the line that demarked the boundary between immunity and loss of immunity. But, even then, by not revealing anything about the nature of the information gained, the disclosure had no capacity to yield any conclusions or rational inferences about the reasoning process, or the quality of the consideration given to the issue. It did not illuminate the basis upon which the trustee exercised its discretion, still less the reasons for its exercise.

Presumably, that is why the beneficiaries remain dissatisfied. Indeed, in support of their primary argument, they contended that what the trustee has revealed to date simply does not inform them about the bases of the decisions to decline to make a distribution.[7]

14 The applicants' proposed notice of appeal contains six grounds. Grounds 1 and 2 seek, in terms, to challenge the judge's rejection of the applicants' contentions referred to above. Grounds 3 and 4 seek to challenge the judge's finding that information available to the respondent upon which its discretionary decisions were based was protected from disclosure to the applicants by reason of the principle in Re Londonderry's Settlement and clause 17 of the trust deed. Grounds 5 and 6 seek to challenge the judge's finding that the respondent had not volunteered sufficient information to the applicants so as to constitute a waiver of the protection from disclosure arising under the principle in Re Londonderry's Settlement or clause 17 of the trust deed. Ground 1 is related to grounds 3 and 4. Ground 2 is related to grounds 5 and 6. In essence, the applicants seek to raise the same two matters identified above as their two contentions at trial.

15 The respondent submits that there was no error in the judge's conclusions. Further, by notice of contention, it asserts that the judge's dismissal of the proceeding below can be supported on the following additional ground:

As a matter of law, voluntary disclosure by a trustee of part of its reasons for the manner in which, or part of the basis upon which, it exercised a discretion conferred by the trust instrument does not, whether by a principle of 'waiver' or otherwise, entitle a discretionary object of the trust to orders compelling the trustee to disclose the balance of those reasons or that basis.[8]

16 Considerations relevant to the exercise of the discretion whether to extend time for the filing of a notice of appeal include the length of the delay, the reasons for the delay, the extent of any prejudice that would be suffered by a respondent if time was extended and the merits of the proposed appeal - 'merits' in the sense that a court might refuse an extension of time if it concludes that the appeal is so lacking in merit that an extension would be futile.

17 The length of the delay in this case is relatively short. Further, this short delay has not occasioned any real prejudice to the respondent. While the respondent does not accept the reason given by the applicants for their delay, and while it also disputes the adequacy of the reasons given by the applicants, all other things being equal, we would be prepared to accept the applicants' explanation for their delay. In this case, it seems to us, that the central issue is the merits of the applicants' proposed appeal.

18 In our view, the proposed appeal is without merit. We agree with the judge when he concluded that the distinction the applicants seek to draw between the subject matter of the reasoning to which protection is afforded to the trustee, on the one hand, and 'mere information' as to the basis upon which the trustee acted (or that was available to the trustee for the purpose of exercising its discretion) on the other hand, is illusory. The very close connection between the information that the applicants seek, and the deliberative process of the respondent, is, as the judge said, exposed by the very terms of the order that the applicants sought at trial.[9] The applicants sought information possessed by the respondent '[f]or the purpose of deciding whether or not to distribute any income of [the trust] to each [applicant]'.

19 In support of their argument, the applicants rely upon what was said by Sheller JA in Hartigan Nominees Pty Ltd v Rydge.[10] Sheller JA said:[11]

With respect to the conclusion in Re Londonderry's Settlement I think material upon which reasons were or might have been based cannot generally be withheld, unless it reveals the reasons themselves or the reasoning process. In Jacobs' Law of Trusts in Australia, 5th ed (1986) par 1716 at 393, referring to the Londonderry's Settlement case the learned authors say:

" ... Nevertheless, this case is clear authority that beneficiaries have no right to see documents private to the trustees which may evidence the reasons why the trustees have made their decisions."

This statement, in my opinion, accurately describes the nature of documents access to which by beneficiaries is denied.

20 It may be accepted as a general proposition that if a beneficiary is entitled to inspection of a trust document as a trust document, that entitlement could not be negated by a mere assertion that the relevant document constitutes material upon which reasons were or might have been based for the exercise of a particular discretion by a trustee. However, that is not this case. As we have said, by the very terms of the order sought, the applicants sought information, verified by affidavit, utilised for the purpose of [the trustee] deciding whether or not to make a relevant distribution. Further and in any event, even if, as the applicants submit, the reach of the principle in Re Londonderry's Settlement can be debated, the applicants' request plainly falls foul of clause 17 of the trust deed as being a request for 'material upon which ... reasons shall or might have been based'.

21 Further, we note that the purposive description of the information sought is adopted in circumstances where the relevant information is in large part not documentary. The information is in effect defined by the trustee's reasoning process. As counsel for the trustee submitted, the applicants seek in effect to, and contrary to relevant authority, interrogate the trustee.[12]

22 Similarly, we see no merit in the applicants' contention as to waiver. The material and information that has been provided does not go any way to providing the reasons of the respondent. As the judge noted, in support of their primary argument, the applicants contended that what the trustee has revealed to date simply does not inform them about the bases of the decisions to decline to make a distribution.[13] In our view, the judge was plainly correct, for the reasons he gave, when he rejected the waiver argument.

23 In the circumstances, it is not necessary to deal with the respondent's notice of contention. That said, absent authority, we take leave to doubt that the concept of waiver has any application to a case of this kind. In our view, the relevant principle is that, to the extent that a discretionary trustee discloses its reasons for decision, those reasons may be examined and reviewed by the Court for the limited purpose of determining whether a proper exercise of discretion occurred. However, what may be examined is only the reasons actually disclosed.[14]

24 For these reasons, we would dismiss this application. Had we been minded to grant the application, we would have dismissed the applicants' appeal for the same reasons.

[1] Originating motion filed 14 August 2013.

[2] Mandie & Anor v Memart Nominees Pty Ltd [2014] VSC 290 ('Reasons').

[3] It may also be argued that the order sought to be appealed from is interlocutory, and that the applicants therefore require leave to appeal in any event. However, the respondent did not so contend and, in the circumstances, we are content to deal with the matter on the basis that the order is not interlocutory.

[6] Reasons [105]-[106] (citations omitted).

[8] Notice of contention filed 8 August 2014.

[10] (1992) 29 NSWLR 405.

[12] Flegeltaub v Telstra Super Pty Ltd [1998] VSC 144.

[14] See Scott v National Trust [1998] EWHC 318; [1998] 2 All ER 705, 718-9; and Flegeltaub v Telstra Super Pty Ltd [1998] VSC 144.