Millar v Hornsby [2000] VSC 270

Supreme Court of Victoria|2000-06-28|Before: Mandie J

TRUSTS - whether clause in will created discretionary trust in favour of employees for the time being - whether ex-employees have standing to seek orders against trustees for access to certain documents and information. ISSUE ESTOPPEL - effect of prior decisions concerning the same clause in the will.

By originating motion dated 10 March 1999 the plaintiffs sue the defendants as trustees of the estate and of the trusts of the will of George Adams deceased dated 16 March 1901 seeking orders that the defendants produce for the examination of the plaintiffs a number of classes of documents including certain books of account and records of the Tattersall Sweep Consultation business carried on by the trustees under the said trusts.

In particular, the plaintiffs seek to examine the books and records showing "how the one tenth of profits held on trust to be distributed between and amongst such of the employees for the time being engaged in the business ... is made up or calculated" and relevant items, payments, deductions and disbursements in relation thereto for financial years from 1993 to 1998.

By order of Master Kings dated 7 December 1999, the following preliminary questions (the subject of the present hearing) were ordered to be tried before the trial of the proceeding:

"(a) Whether the plaintiffs have standing to seek the relief sought in the proceeding; (b) Whether clause Y of the will of the late George Adams created as between the trustees of the estate of the late George Adams and `the Employees for the time being engaged in the said business', being the Tattersalls Sweep Consultation Care of George Adams, such relationship as would entitle the employees to seek from the trustees the relief sought in the proceeding. (c) Whether, [i]f the answer to 2 be yes, the plaintiffs, as persons who are not now employees engaged in the business but were such employees for the period in respect of which documents and information are sought in the proceeding, have standing to seek the relief sought in the proceeding."

Pursuant to the Master's order the parties provided an agreed Statement of Facts which may be summarised as follows.

George Adams died in Tasmania on 23 September 1904 leaving a will dated 16 March 1901 and a codicil thereto dated 31 May 1902, both executed in Tasmania. At the time of his death, George Adams was a resident of and domiciled in Tasmania. Prior to his death he conducted at Hobart a sweep known as "The Tattersalls Sweep Consultation care of George Adams" ("the business").

In his will the testator authorised and empowered the trustees of his estate "to carry on and continue or to use their best endeavours to carry on and continue in Tasmania or in any other place whatsoever [the business]... as heretofore carried on by me with the fullest most complete and most absolute powers in all respects as if they were the sole owners thereof."

The will has, since the testator's death, been paragraphed for ease of reference. By clause Y of the will, the testator directed the trustees of his estate:

"Y. AND I DIRECT my Trustees to stand possessed of the net profits which may arise from the carrying on and continuance of my said business under the power for that purpose hereinbefore given UPON TRUST to pay the same to the persons and for the purposes hereinafter named and mentioned in the following proportions namely:- TO the said David Hastie Harvey one-tenth TO the said Thomas Lyons one-tenth TO the said Elliott Grant one-tenth TO the said William James Adams one-tenth TO the said William Alexander Finlay one-twentieth TO the said Gerald J. Barry one-twentieth TO the Right-Honorable Sir Edward N. C. Braddon of the Forth in Tasmania one-twentieth TO the Honorable Sir Phillip Oakley Fysh of Hobart aforesaid one-twentieth TO the Honorable Alfred Page of New Town near Hobart aforesaid one-twentieth TO the Honorable Henry Isadore Joachim Rooke of Launceston in Tasmania one-twentieth TO John Bury Curran of Hobart aforesaid Auctioneer one-twentieth TO Henry Thorpe of The Oxford Hotel Sydney aforesaid one-twentieth TO be distributed between and amongst such of the Employees for the time being engaged in the said business and in such proportions in all respects as my Trustees shall in their absolute discretion think fit one-tenth." (Emphasis added.)

Since the testator's death, his executors and then the trustees of his estate have continuously conducted the business and, at all times relevant to this proceeding, the testator's estate has been administered in Victoria. The business has expanded and now includes sweeps, lotteries (including Tattslotto), Club Keno and electronic gaming machines.

The business has been incorporated and the present trustees, the defendants, hold all the issued shares in the relevant corporations.

The plaintiffs were employed by the defendants in the business; the first plaintiff from 3 November 1993 to 2 August 1999, the second plaintiff from 3 January 1994 to 29 January 1999. Thus the first plaintiff's employment ceased after this proceeding commenced and the second plaintiff's employment had ceased prior to the commencement of the proceeding. During their employment, both plaintiffs received one or more payments purportedly made under Clause Y of the will in each of the years 1994 to 1998.

I turn from the facts to the defendants' primary submission. The defendants accepted that prima facie trustees were obliged to allow any beneficiary to inspect trust account records and other trust documents and to give a beneficiary information and explanations as to the manner in which trust property had been invested or otherwise dealt with ("rights of access"). The defendants noted that rights of access might vary considerably from case to case and might be subject to limitations or qualification in a number of respects (such as in relation to divulging reasons for the exercise of discretion or in relation to revealing matters disclosed in confidence or the disclosure of which might prejudice beneficiaries). The defendants conceded that prima facie the objects of a discretionary trust did have standing to assert rights of access against the discretionary trustee although the juridical basis of that right was the subject of debate. However, the defendants submitted that the plaintiffs did not and could not have any rights of access at all because employees of the business (a fortiori the plaintiffs as ex-employees thereof) could not properly be characterised as objects of a discretionary trust.

In order to understand the defendants' submission, it is necessary to refer to the decision relating to the will of the testator given by P. W. Street J (Judge in Equity) in Barry v Adams (Supreme Court of New South Wales, 15 October 1907, unreported) ("Barry").

That case was commenced by Originating Summons. The plaintiffs were two of the executors and trustees of the will of the testator and various of the defendants were joined for the purpose of seeking appropriate representative orders. The court ultimately made those representative orders in relation to specified classes of beneficiaries under the will, in relation to the next of kin of the testator and in relation to the defendant John Coleman who was appointed to represent "the employees in the said sweep business who are not otherwise interested therein".

Question 16 in the amended originating summons asked "[w]hether the trust in favour of the employees for the time being engaged in [the business] in the said will mentioned is void for uncertainty or otherwise?" Question 16 was answered by Street J as follows in the Court's order dated 30 October 1907:

"That the trust in favour of the employees for the time being engaged in the said sweep business mentioned in the said will ... is not void for uncertainty or otherwise."

The reasons given by Street J for that answer were as follows:

"The next question which I have to determine is that which is numbered 16 in the Summons and which is in the following terms: `Whether the trust in favour of the employees for the time being engaged in the "Tattersall Sweep Consultation care of George Adams" in the said Will mentioned is void for uncertainty or otherwise?' It was argued that this provision in the Will is void: (1) on the ground that it infringes the Rule against Perpetuities in as much as the Sweep Consultation business may be carried on for an indefinite period and under this provision future interests are created which may not come into existence until after the expiration of the period limited by the Rule relating to Perpetuities; and (2) on the further ground that in any event it creates a trust which is void for uncertainty as to the objects of the trust in as much as there are no cestuisgui trust. The contention that the interests are too remote by reason of the Rule against Perpetuities must it appears to me depend upon whether the direction for carrying on the business is bad as being a direction for carrying on for an indefinite time because in my opinion if the direction to carry on the business does not offend against the Rule if there is [no] suspension of the vesting of the beneficial interests and if either the Trustees or beneficiaries can at any time stop the carrying on it cannot be said that a direction for the distribution of the profits arising while so carrying on infringes the Rule. I am clearly of opinion that the direction for carrying on the business though no period is fixed in terms is a valid direction. The Rule against Perpetuities is designed to prevent property from being rendered inalienable by reason of a suspension of vesting and if the interests are vested the Rule has no application. In the present case the Testator has authorised his Trustees to carry on his Sweep Consultation business and has directed them to stand possessed of the net profits which may arise from carrying it on upon trust as to 8/10ths to divide the same among certain specified legatees and upon trust as to a further 1/10th to distribute the same between and amongst such of the employees for the time being engaged in the business and in such proportions in all respects as the Trustees shall in their absolute discretion think fit."

The defendants submitted that Street J's decision was, on the face of it, wrong in law if the provision in favour of the employees amounted to a discretionary trust because the trust would have infringed the rule against perpetuities. This was because the duration of the discretionary trust was not limited to any life or lives in being at the date of the death of the testator plus 21 years and thus interests might vest in objects outside the perpetuity period.

The defendants therefore submitted that clause Y should be interpreted as not creating a discretionary trust and Street J's decision should be likewise understood as not so treating clause Y. Rather, clause Y should be interpreted (and Street J's decision should be understood as so interpreting it) as being no more than a direction to the trustees to distribute a bonus amongst employees, not for their primary benefit but in the interests of the business and the named beneficiaries. The trust thereby created was owed to or in favour of the named beneficiaries and not the employees.

The defendants' analysis was derived from what was said by Dixon J in Blair v Curran [1939] HCA 23; (1939) 62 CLR 464, 527. It is necessary therefore to refer to that case. Blair v Curran was a case involving the construction of the same will and, in particular, with a provision of that will which directed the trustees to hold one-tenth of the net profits of the business and any other unapplied or undisposed of net profits "upon trust to accumulate the same but without being bound to invest the same". An originating summons was taken out in the Supreme Court of Tasmania to determine the question, inter alia, whether the trustees were authorised to accumulate the net profits under this provision after 21 years from the testator's death. The High Court held that this provision was void after the expiration of 21 years from the testator's death by virtue of the Thellusson Act and that this conclusion was not excluded by any part of the orders of Street J in 1907. The reasons of Latham CJ and Dixon J contain obiter dicta concerning clause Y. Latham CJ (at pp488-9) said:

"Clause Y also directs that one-tenth of the profits is `to be distributed between and amongst such of the employees for the time being engaged in the said business and in such proportions in all respects as my trustees shall in their absolute discretion think fit.' In the proceedings in 1907 Street J. answered a question asked by declaring `that the trust in favour of the employees for the time being engaged in the said sweep business . . . is not void for uncertainty or otherwise.' It will be observed that his Honour expressly refers to this provision as creating a trust and holds that it is not void for uncertainty or otherwise. Such a trust is not charitable in character; it is intended to continue for an undefined time; and the beneficiaries under it consist of a class of persons fluctuating from time to time. It might be thought therefore that the gift was void but the contrary decision has been reached in litigation between all the parties who are now represented before the court and this court must necessarily accept the decision that the provision in question is not void for uncertainty or otherwise. This decision must, I think, be construed as excluding any objection based on the rule against perpetuities. It means that at the time when the question arose, there was nothing invalid in the provision. The validity of such a provision, if it is valid, cannot be affected by effluxion of time. It might, have been otherwise if the clause had provided for the accumulation of any of the profits. The interest of the employees, however it may be defined is an interest only in relation to one-tenth of the profits while the sweep is a going concern. A later provision in the will (clause DD) provides for the division of the proceeds of the sweep business if it is wound up. The employees take no benefit under clause DD, though, as will be seen, the persons specifically mentioned in clause Y, or their widows, do benefit under clause DD."

"Upon the bare construction of the provision for distributing one-tenth of the profits among the employees, I should have thought that employees for the time being were beneficially interested in the discretionary trust. But this means that a class took a beneficial interest who were not necessarily ascertained within the period limited by the rule against perpetuities. If this were so, the provision would be void. Indeed there is no escape from the conclusion that the provision contravenes the rule against perpetuities, unless it is construed as giving the employees no title as a class beneficially interested in the discretionary trust and as being no more than a direction operating for the benefit of the named persons sharing in profits, a direction, in effect, to distribute a bonus among employees, not for their benefit , but to obtain better service in the interests of the business. The order of Street J has declared the provision good, and it may, therefore, be right to adopt some such construction."

Thus Dixon J sought to rationalise the construction of clause Y in order to support the conclusion reached by Street J, a conclusion which otherwise must have been incorrect because "[u]pon the bare construction of [clause Y] ... the employees for the time being were beneficially interested in the discretionary trust" and the clause therefore offended the rule against perpetuities. It can be seen that the defendants in this proceeding have seized upon Dixon J's approach in support of their contention that the plaintiffs as employees were not objects of a discretionary trust and therefore were owed no fiduciary duty by the trustees and could seek no rights of access.

The defendants also relied upon Turner v Watchorn ("Turner"), another case involving the trusts under the will of the testator - (Green J, Supreme Court of Tasmania, 3/2/54, unreported). In that case, the plaintiffs were employees of the business and the defendants were the trustees, the beneficiaries entitled to the profits of the business and the employees of the business who did not support the plaintiffs' claim. The plaintiffs' claim was for a declaration that the transfer of the business from Tasmania to Victoria as proposed by the trustees would be a breach of trust and for an injunction preventing the same. Green J decided that the will permitted what was proposed and that the transfer was not a breach of trust. Having so decided, Green J nevertheless went on to consider "the question as to whether the plaintiffs are in any case beneficiaries under the testator's will and as such entitled to bring this action". Green J referred to the answer given to question 16 in Barry and set out the reasons of Street J in that case.

"It is clear from this that Street J thought that the employees for the time being were beneficiaries and that the court would enforce the trust in their favour."

Green J then set out the passages from the judgments of Latham CJ and Dixon J in Blair v Curran which are quoted above.

Green J went on to make the following observations:

"It was argued for the plaintiffs that the view of Street J. is correct and that I should follow it. The argument was that the interests of the named beneficiaries (as I will call them) in the capital were vested and that they could, as Street J. said, by agreement among themselves stop the carrying on of the business at any time and enforce a realisation and distribution of the assets. From this it followed that the interest of the employees was a determinable interest, there was no restriction in the alienability of the corpus and the Rule against Perpetuities had no application. Reliance was placed on the judgment of Kitto J. in Congregational Union of N.S.W. v. Thistlethwaite [1952] HCA 48; 1952 Argus L.R. 729 at p.743 and the cases there cited. I think the cases are to be distinguished because in them the donee of income had a vested interest in the income, and there was a person beneficially interested in remainder. Here the gift of income to the employees (if it is a gift of an interest to them at all) is not vested. It is a future beneficial interest - if it is an interest at all - and it must vest within that period. I think that the argument addressed to me confuses the Rule against Inalienability with the Rule against Perpetuities. Just because property is presently alienable, it does not mean that future interests are free from the Rule against Perpetuities. The two Rules are quite different. Re Chardon (1928) 1 Ch. 464 at 467-8. It is beyond question that future interests must conform to the Perpetuity Rule. If they can be destroyed at will by the owners of a present vested interest in the capital it may well be that they are not really `interests' at all (cf. Grey on Perpetuities 4th Edn. para. 203 at p.193). But if they are interests then they must conform. I therefore think that the future employees here had no beneficial interest in the profits. I can put the matter another way by saying that there was here an absolute present gift of the capital to the named beneficiaries and that gift necessarily carries the income. If the income is in fact paid elsewhere it is really the gift of the named beneficiaries and not the testator. Street J. held that there was no suspension of the vesting of the beneficial interest in the profits of the business while being carried on. I think this was basic to his view of the matter and, with the greatest respect, I think it is wrong. I cannot see how the interest of the employees - the prospective future employees - was vested. It was argued that the judgment of Street J. creates an estoppel. I do not think it does. It is true that Street J. held the gift to the employees not void for uncertainly or otherwise, but it is only the order which could create the estoppel, not the reasons on which it is based. And the gift is not void; it is good as a gift to the named beneficiaries payable at their will as a bonus to the employees as Dixon J. suggests. If this is wrong I will think there is no estoppel as the plaintiffs here were not parties to the Originating summons, no representative order was made or could in N.S.W. at the time be made, so as to bind future employees and the trustees did not themselves represent future employees but in fact by their counsel argued that they were not beneficiaries. In my view the employees are not beneficiaries."

The defendants submitted that the construction of clause Y preferred by Dixon J and Green J was correct and should be adopted for the purposes of answering the questions in this proceeding. The defendants further submitted that the plaintiffs were precluded by reason of an issue estoppel created by Green J's decision from asserting that they were in the position of beneficiaries who were owed fiduciary duties by the trustees. However, the defendants rightly conceded that Green J was wrong insofar as he held that the decision of Street J was not binding upon all those interested including the trustees and the employees. What the defendants submitted was that Street J's decision as to validity of clause Y was binding but that clause Y should be interpreted in the way suggested by Dixon J (and Green J) and that Street J's reasons should be understood as not inconsistent therewith. Alternatively, if the judgments in Barry and Turner were irreconcilable, the more recent judgment in Turner should be given effect to.

In answer the plaintiffs submitted that it was implicit in the order of Street J that clause Y created a discretionary trust and that Street J's decision was binding as a matter of res judicata. The plaintiffs submitted further that to the extent that Green J's decision resulted in "competing res judicata" the law was that the first judgment prevailed.

I am, with respect, unable to agree with the construction of the will essayed by Dixon J and adopted by Green J. If this Court be not constrained by the prior decisions in Barry or Turner, my opinion would be that Clause Y of the will plainly creates a discretionary trust in favour of employees for the time being. Do the two prior decisions require this Court to come to the same conclusion, to a different or contrary conclusion, or to any particular conclusion at all?

Turning first to what was in fact decided in Barry, I think that it is clear that Street J accepted the assumption expressed in question 16 that clause Y contained a trust in favour of the employees. His answer to the question contained in the order of 30 October 1907 decided that "the trust in favour of the employees... is not void for uncertainty..." I note the passage in the reasons of Latham CJ in Blair v Curran, quoted above, which observes that Street J "expressly refers to this provision as creating a trust" in the answer to question 16. Further, I think that the reasons of Street J, however incorrect they may have been as to the application of the rule against perpetuities, show that Street J considered that clause Y created a discretionary trust in favour of the employees.

Every res judicata operates as an estoppel (Spencer Bower, Turner and Handley: The Doctrine of Res Judicata (3rd ed) p.1 - "Handley"). What is the scope of the estoppel created by Barry? The defendants accepted that Barry was binding as to the validity of clause Y so far as the rule against perpetuities is concerned. As regards issue estoppel, the defendants made a submission as to the operation of Turner but made no clear submission as to the operation of Barry save to contend that Turner should prevail in the case of a conflict.

Issue estoppel covers fundamental issues of law and fact determined in an earlier proceeding which formed the basis of the judgment (see Handley at para. 182 and cases there cited). Although the proposition that clause Y created a trust in favour of the employees was not the subject of dispute in Barry (and therefore not the subject of determination in that sense), the proposition was assumed and thus admitted by all parties and was fundamental to Street J's decision and order (cf Hoystead v Commissioner of Taxation [1926] AC 155, 166). In my opinion, it is not open to those parties (or their privies), and in particular the trustees, to depart from that fundamental assumption and admission in this proceeding. It is therefore not open to the defendants to challenge the proposition that clause Y creates a trust in favour of the employees. If I am correct in so deciding, Barry must prevail over any issue estoppel arising from Turner because the earlier decision prevails in case of conflict (see Handley at para.372 and cases there cited).

However, in case I am wrong in deciding that Barry gives rise to such an issue estoppel, I ask whether Turner gives rise to any issue estoppel, as argued by the defendants, which would prevent the plaintiffs from contending that clause Y creates a trust in favour of the employees. In my opinion, it does not because, although Green J. expressly decided the question so as to determine the standing of the plaintiffs as an alternative basis for his decision, that determination was not necessary or fundamental to his decision in the case and his decision would stand without it (see Handley at paras. 184, 185 and 202 and cases there cited). It was not "legally indispensable" to his conclusion (per Dixon J. in Blair v Curran at p. 532).

For those reasons the primary submissions of the defendants are rejected. The defendants said in the alternative that, even if the provision in clause Y created a discretionary trust, the plaintiffs still had no right of access as claimed because, so it was submitted:

(i) in a discretionary trust where the range of benefit is wide, the objects will not have rights of access;

(ii) trustees should not be put in a position where they might be subjected to claims by many beneficiaries for access to documents and for the provision of information;

(iii) in the present case the past and present employees are too numerous to be owed the alleged duty;

(iv) alternatively, ex-employees had no right of access as no fiduciary duty continued to be owed to them.

In my opinion, the authorities cited by the defendants do not support the above submissions. The right of access of a possible beneficiary in a large class has been questioned (see Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405, 432) but the better view is that the matter is not one of standing but of equitable discretion to be exercised in the light of all the circumstances. In Re Murphy's Settlements [1998] 3 All ER 1, 11, Neuberger J applied what I think is the correct principle as follows:

"While there is no question of any wrongdoing so far as the defendant or the trustees of his 1965 settlement are concerned, I would, in light of the above discussions, require authority or established principle to support the proposition that a discretionary beneficiary was never entitled to seek such information before I was prepared so to hold. The question which therefore has to be considered in relation to the defendant's 1965 settlement, is whether it is appropriate to grant the relief sought by the plaintiff in all the circumstances. In this connection, it should be emphasised that the mere fact that the court has jurisdiction to make the order cannot in my view mean that the court has no discretion as to whether to make such an order. The very reasoning which leads me to the conclusion that there is power to make such an order, namely the wide and flexible jurisdiction of the court of equity, must carry with it a broad discretion. Furthermore, although concerned with a different jurisdiction to achieve the same end, it appears to me that the observations of the House of Lords in the Norwich Pharmacal case as to the discretionary exercise of the discovery jurisdiction are, at least in broad terms, applicable to the equitable jurisdiction."

In my view, an ex-employee, certainly one who was a beneficiary in receipt of payments from the trustees whilst an employee, has a sufficient interest so as to be entitled to seek documents and information from the trustees and might in the Court's discretion obtain an order to that end, depending on all the circumstances and the nature of the information sought.

Accordingly, the preliminary questions should be answered:

At a glance

Court

Decision date

Before

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Judgment (48 paragraphs)

Parties

Cases Cited (2)