Plaintiff v Defendants

2 It is apparent from the materials before the Court that the personal relationship between the plaintiff and her parents has deteriorated over intra‑family financial matters. In pre-action correspondence, the plaintiff's lawyers recited instructions that the plaintiff suffers from a learning disability and that her father has exerted financial control over her. She complains that he has taken complete control of her financial and taxation affairs; that she has never signed or received any final tax returns and her father had attended to such matters to her exclusion.

3 The disaffection goes further. According to her lawyers' pre-action letters, she says her father has 'produced (or caused to be produced) legal documentation for our client and required her to sign such documentation without explaining the documents or their ramifications, [without] providing her with copies of the documents, or [without] even suggesting that she obtain independent legal advice before she signed them'. It is also said she was pressured to sign documents. It is only fair to add that the legal correspondence also states that she does not seek to 'add to any cause any discord or within the family but seeks to obtain the necessary information regarding her financial affairs to enable her to manage her affairs independently and to retain and structure her assets in a manner of her choosing'. I shall return to her pleaded causes of action later in this judgment and how the defendants controvert what is put against them.

4 The plaintiff's father has sworn an affidavit of documents on behalf of all defendants. That includes the trust deeds; the financial statements for the Toneware Trust for the 2010 to 2017 financial years; and the financial statements for the Feniger Family Trust for the financial years 2010 to 2012. There are no financial statements discovered for the Kestenberg Yarraville Trust.

5 The plaintiff has applied to the Court for an order under rule 29.08 seeking particular discovery of eight classes of documents concerning the financial affairs of the three family trusts. Rule 29.08 affords a party the means to ask the Court to go behind the presumed conclusiveness of an affidavit of documents if there are grounds for a belief that particular documents relating to any question in the proceeding may be, or may have been, in a party's possession. If grounds are made out, the Court may order the responding party to give additional discovery of particular documents.

6 In my abbreviated form, the documents sought for each of the three trusts are: additional financial statements of the trusts; all source documents informing or underlying the trusts' financial statements; documents pertaining to undistributed distributions to beneficiaries; unredacted bank account statements; general ledgers; distribution minutes; and cash books. This appears to be a widespread probe into the financial affairs of the trusts.

7 Discovery is a tool of justice, but faithful to the legal principles that govern its proper use, it must be justified by reference to the content and analysis of the pleadings to see what is truly relevant, substantively and forensically. In antecedent correspondence the plaintiff's lawyers maintained that she was, as a beneficiary, entitled as of right to see trust documents. That position was, in my view, correctly rejected by the defendants' lawyers. It is sufficient to say that whilst there may be an expectation that basic trust information would be disclosed to a close beneficiary who wanted it, the fact is that a discretionary beneficiary has no proprietary interest, vested or contingent, in the assets of a trust but only an expectation. Legal authority has it that the principled and correct approach is to regard a beneficiary's right to seek disclosure of trust documents as an aspect of the Court's inherent jurisdiction and discretionary powers to supervise and where appropriate to intervene in the administration of a trust. A discretionary beneficiary could seek such intervention in an administration action. Otherwise, as was the position taken by the defendants' lawyers in their correspondence, a beneficiary, and particularly a discretionary beneficiary, is not entitled as of right to disclosure of that which could be properly described as a 'trust document'. See the discussion in Guest v Guest[1] and moreover, the appellate examination of the question by the Supreme Court of New Zealand in Erceg v Erceg.[2]

8 This aspect of the law of trusts needs to be stated at the outset because no part of this application concerns a beneficiary's right to trust documents 'in the air'. This application is governed by the law of discovery of documents, as provided by the rules of civil procedure which are well‑known as being dependent on a beneficiary showing that the documents sought, generally or particularly, are relevant to or (to use the language or rule 29.08) 'relate to' a controversy on the pleadings.

9 For the reasons that follow, and subject to one exception, I think the application for particular discovery of the eight categories is not sustainable. That is because in this peculiar case - about which, more later - and because of the distinct way in which the material facts are alleged and met with admissions by the defendants, the question of the fact and the amount of trust distributions appears to not be in dispute and those questions are patently irrelevant to the other heads of claim which are unconcerned with matters financial. And it is the non-financial questions that dominate this case. Therefore, I think the pursuit of particular discovery of financial statements and 'drilling down' (the locution of forensic accountants) into underlying financial records of matters not in dispute have not been shown to be relevant.

10 The one exception was agitated in argument by the Court at the hearing. The claim that attracts distinct analytical attention for this discovery application is one in which the plaintiff sues each trustee company for breaching its legal duty to her as beneficiary by paying her trust distributions over to her parents in the period 2006 to 2017. She has also sued her parents (who control the trustee companies) in their personal capacity as accessories to the trustee's wrongdoing for actively participating in that alleged breach and receiving her trust distributions knowing of the trustee's breach. She seeks various remedies including holding her parents liable to account for her entitlements, or to compensate her for the loss, as well as a removal of the trustees. The parents say those distributions were not paid to them by the trustee but were gifted to them by their daughter in writing. The daughter says the letters of gift were not authentic; that is, she did not sign them.

11 Rather than have to infer or distil facts and numbers from existing financial documents as discovered to see the entitlements and the effectuation of the gifts, I think the defendants ought give particular discovery of documents, if any, that show the plaintiff's distribution entitlements in any given year standing to her credit in the trusts books of account or other records of the trust fund, and documents that then show how or in what way those financial entitlements were then transmitted to the parents in consummation of the alleged gift to her parents. This will enable the plaintiff to see how her entitlements were remitted to her parents as a gift or otherwise.

12 I turn to the statement of claim and the three heads of claim.

13 This concerns property at Flat 4, 7 Sinclair Street in Elsternwick. The plaintiff alleges that in a conversation in her mother's car in August 2015 her mother said 'Now you have a house, you don't have to worry about anything'. That is denied. However, it is a fact that the plaintiff came to be registered as the proprietor of the Elsternwick property, and has lived there since November 2015. The plaintiff says that in October 2018 her father warned that he had a right to sell the Elsternwick property unless the plaintiff repaid to him his loan to her loan of $1.1 million to buy the property. The plaintiff then discovered that her parents became registered as mortgagees of the Elsternwick property in November 2017 as security for a loan agreement between her and her parents dated 11 February 2016. A loan agreement has been has been discovered by the defendants, as has a mortgage dated 14 November 2017.

14 The plaintiff denies ever executing a loan agreement or a mortgage. She does not allege that her signature was forged. In substance, she says that as she was suffering from a diagnosed learning disability, it made it difficult for her to comprehend the import or effect of legal documents and had reposed complete trust and confidence in her parents to act in her interests to ensure she understood the legal documentation. From there, her case is that the mortgage and the loan agreement ought be set aside as having been procured by undue influence, and that she is not bound by the loan agreement.

15 In their defence, the parents say that the three of them executed the loan agreement and the plaintiff executed the mortgage. They deny that their daughter was suffering from a diagnosed learning disability. They deny that the mortgage was procured by undue influence. Judging by the documents that they have already identified by discovery, they will point to her academic achievements, tertiary education, and her employment experience.

16 My first conclusion is that, plainly, the trust financial documents of which particular discovery is sought is manifestly not relevant, substantively or forensically, to the question of the validity of the loan agreement or the mortgage over the Elsternwick flat. The circumstances in which these documents came into existence and the question of the ability of the plaintiff to understand the nature and legal effect of these agreement will be a matter for direct evidence, in a familial context. This is all outside the affairs of the trusts.

17 This claim concerns the plaintiff's unrequited entitlement to trust distributions. This, I think, is the principal focus on the discovery application. It is by nature more attuned to the sort of documents being sought. But it requires close scrutiny of the way in which it has been pleaded.

18 Paragraph 18 of the statement of claim commences with the words 'According to tax returns submitted on behalf of the plaintiff to the Commissioner of Taxation (ATO) and obtained by the plaintiff in the period since the Statement as to Ownership...'. The 'Statement as to Ownership' is the description given to her father's statement made in October 2018 that he would sell the Elsternwick property unless she repaid his $1.1 million loan to her. Critical to this application, paragraph 18 then tabulates the distributions according to her personal tax returns for the financial years 2016-2017.

19 The figures in the table at paragraph 18 are taken from the various individual tax returns lodged on behalf of the plaintiff showing income received from each of the trusts. Those returns were produced by the defendants to the plaintiff before this application was filed.[3] Assuming compliance with the taxation laws, the tax returns would be a reliable evidence of trust distributions 'received' by her as income because the returns are accompanied by solemn declarations that the information given by the tax payer or provided to her tax agent is 'true and correct'. All the tax returns in evidence make such a declaration with a date and signature. Yet, in the pre-action correspondence, the plaintiff's lawyers stated that 'We are instructed our client has not ever signed or received any final tax returns'.

20 Nevertheless, that is what is pleaded, and the defendants do not dispute the distinct allegation that 'according to tax returns submitted on behalf of the plaintiff' she declared all the distributions tabulated in paragraph 18 of her statement of claim. There is no ancillary allegation by the plaintiff that the trust distributions as pleaded by her and declared by her as income in her tax returns were not the 'true' distributions of the trusts. Thus, on the pleadings, there is no issue about the Declared Distributions for each of the trusts for 2006-2017 which the plaintiff says she 'received' according to her tax returns.

21 The next point of reference is the allegation in paragraph 19 of her statement of claim that 'The plaintiff has not received from the Defendant Trustees any payment or other benefit commensurate with the Distributions'. That is, she pleads she has not received payment of the Declared Distributions which she declared as income in her income tax returns as pleaded in paragraph 18 of the statement of claim.

22 That brings in the second prominent and non-financial issue in this case. The defendants admit that the plaintiff did not receive payment of any of her trust distributions. That is because the defendants rely on three typewritten letters, signed by the plaintiff, in which she purports in unequivocal language to gift her trust entitlements to her parents. Those letters were given by their lawyers to the plaintiff's lawyers before this proceeding was commenced.

23 The first of those letters is dated 13 May 2013, addressed to 'Dear Dad & Mum' and says, under the heading of 'Beneficiaries Entitlement - Toneware Trust':

I, Jade Kestenberg, hereby gift the sum of $150,000 from my Beneficiaries Entitlement account as at 30 June 2012 standing to my credit in the above named Trust to my parents, David & Linda Kestenberg, on the basis of pure love and affection and in recognition of the financial support that has been provided to me.

24 There is an identical letter dated 7 February 2014 which gifts the sum of $60,000 from her Beneficiaries Entitlement account in the Toneware Trust. There is a third letter dated 21 February 2017 which gifts a total of $225,077 from the three trusts. All these letters have a signature purporting to be that of the plaintiff. The plaintiff pleads them in the statement of claim and alleges she did not prepare or sign any of these letters. Her parents admit the plaintiff did not prepare these letters, but say that she signed the letters. In the course of the hearing of this application, I received into evidence a fourth signed letter dated 13 May 2013 in identical form concerning the Feniger Family Trust in which the plaintiff gifts to her parents the sum of $140,000 from her Beneficiaries Entitlement account as at 30 June 2012.

25 Thus, issue is joined on the pleadings concerning the plaintiff's Declared Entitlements under each of these trusts. The issue is not financial, for the Declared Entitlements are agreed. The issue is whether the gift letters are authentic. Determination of that issue does not depend on, nor is it forensically informed by the financial statements of the trust and the underlying financial workings. Akin to the case concerning the mortgage and the loan agreement, the trial of these cardinal issues will turn on direct and circumstantial evidence from the parties and maybe other witnesses, concerning the preparation, procuration, and the making of the plaintiff's signature on the documents on which her signature appears.

26 The third claim concerns unauthorised transfer of tax refunds. The plaintiff alleges that she was entitled to, and was paid, tax refunds by the Australian Taxation Office for a total of $13,969 between the years 2012 and 2017. She alleges that by various means, her father took receipt of those assessed refunds without her knowledge or consent. In their defence, the defendants say, in substance, that payments to her father were made with her knowledge to reimburse him for payments made on her behalf, including payments made to the ATO on her behalf for tax due in the 2012 financial year. These are matters outside the trust. The documents sought by the plaintiff on this application are not relevant to that issue.

27 The only issue with which the documents sought in this application could possibly concern is the 'Declared Distributions'. Having regard to the way that the case is explicitly pleaded by the plaintiff by reference to the tax returns, there is no dispute between the parties regarding any of the trust distributions according to the tax returns. As was said in some correspondence, and as I think was ultimately the thrust of Mr McAloon's submission, 'The above documents (as came to be sought in the summons) are relevant to paragraph 18 of the statement of claim and to paragraph 18 of the defence. In particular, they are relevant to the true position with regard to our client's beneficial entitlements and any alleged extinguishment of them'.

28 One answer to this might be that the tax returns are signed by her as being true and correct, with an accountant acting. But, according to the correspondence (but nowhere alleged in the pleading) she did not sign the tax returns, meaning they must have been signed by someone else as part of the general fabric of her case that she had no control over her financial and taxation affairs and documents were signed without her knowledge. And here, I think, is where the difficulty lies with this application. This is not an administration application seeking the Court's intervention for the production of documents to hold the trustee to some duty to account. It is a case based on breach of trust and knowing receipt by the parents of entitlements belonging to the plaintiff. There is no issue on the pleadings whether the distributions were 'true' or not. The plaintiff's case does not make a direct or indirect allegation that the distributions as 'received' by the plaintiff were not the 'true' distributions.

29 Even so, it was submitted for the plaintiff that rule 29.08 opens up the Court's discretion to order particular discovery if there are grounds for a belief that a document 'relating to' any question in a proceeding may be or may have been in a party's possession. 'Relating to' was submitted to be a more generous test for discovery than is stated for general discovery under rule 29.01 which limits discovery to documents on which the party relies, or which adversely affect the party's own case or another party's case, or documents that support another party's case.[4] The submission was directed as saying, I think, that 'relating to' means there can be matters that are adjectival to base relevance that widen the scope of discovery under rule 29.08 and the question of the 'true' distributions, although not pleaded, was a question 'relating to' the declared distributions.

30 The stipulations for the scope of discovery in rule 29.01 are there to deal with the dissatisfaction and abuses in litigation that arose with the largesse of the well‑known Peruvian Guano test which allowed discovery of documents indirectly relevant or which might lead to a train of enquiry. The phrase 'relating to' as it appears in rule 29.08 is abundant in legislation and legal drafting and its meaning is highly contextual.[5] For my part, I think rule 29.08 is subordinate to rule 29.01 and the test of relevance on the pleadings must prevail in general as well as particular discovery. I do not accept on this pleading that the 'true' distribution relevant on the allegations as made, and I cannot see how it is a related question. Therefore I think what is lacking is a principled basis to attract the commandments of the Civil Procedure Act or the powers under s 55 of the Act or rule 29.05 to allow an expansion of the scope of discovery.

31 The plaintiff's summons is a wide ranging request into the internal accounting of the trusts. The documents as sought are plainly not relevant to the questions of the loan, the mortgage, the gift letters, or the payments made on behalf of the plaintiff by her father to reimburse him for payments made by him on her behalf, including payments made to the Australian Taxation Office on her behalf. Those dealings are interpersonal and did not occur as a matter of the financial affairs of the trust. I cannot see how the financial documents as sought could in any way forensically assist the determination whether the documents were or were not signed by the plaintiff. That will all depend on direct evidence. And possibly the credibility of witnesses.

32 The defendants admit that which the plaintiff said was true in her tax returns. That being so, I am bound to sustain the defendants' resistance to particular discovery of the documents on the distributions issue.

33 I think the only question about particular discovery, or perhaps broader notions of procedural justice to ascertain relevant facts only within the knowledge of one party, turns on the effectuation or consummation of the alleged gift. Each of the letters refers to a gift 'from my Beneficiaries Entitlement account ... standing to my credit on the above named trust ... '. The parents deny that the trustees paid over their daughter's trust distributions, and say the distributions to them were a gift from their daughter. In my judgment, I think there is sufficient in the validity of gifts issue to say that in the interests of revelation of instrumental facts before trial, discovery is attracted of trust documents showing if, when, and how the gift was effectuated to the parents from that which is described in the gift letters as 'my Beneficiaries Entitlement account' or as documented by any other trust document. There are no questions of personal or commercial confidentiality or any practical difficulty in providing the documentation, or any impact on the trust or other beneficiaries if discovery is made.

34 That leaves one residual matter. In the course of submissions, Mr Noonan of counsel for the defendants informed the Court, on instructions, that for the financial years 2006 to 2009 the defendants did not have any financial statements for any of the three trusts. If it is the case that those statements once did exist, that ought be formally stated in the usual manner in a supplementary affidavit of documents.

1. Pursuant to rule 29.08 the defendants shall file a supplementary affidavit of documents in the usual manner and form stating whether the following documents are or have been in their possession (and in the latter case, when they parted with the documents and their belief as to what has become of them):

(a) financial statements for the Toneware Trust, the Feniger Family Trust and the Kestenberg Yarraville Trust for the financial years 2006 to 2009; and

(b) books of account or other records (including a record described as a Beneficiary's entitlement Account or some such description) showing how or in what way a gift of the plaintiffs entitlements as beneficiary was effectuated to David and Linda Kestenberg.

36 That leaves the question of costs of this application. I invite the parties to submit to my Associate written submissions on costs (not exceeding two pages) within seven days, according to which the Court will make a costs determination on the papers, and authenticate a final order.

[1] [2015] VSC 761, [60] - [71].

[2] [2017] NZSC 28.

[3] See exhibit RB-4 to the affidavit of Reid Bettridge sworn 30 October 2019.

[4] See Opti-Pharm Pty Ltd v Nature Pty Ltd (No 2) [2018] VSC 688, [20].

[5] See Pearce and Geddes, Statutory Interpretation in Australia (8th ed), [12.5]ff.