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[2020] VSC 590
Supreme Court of Victoria
2020-09-14
DELANY J
Original judgment source is linked above.
EQUITY - Trusts - Beneficiary application for inspection of trust documents - Alleged breach of trust - Existing and prospective discovery orders - Piecemeal provision of limited trust documents - Whether beneficiary proprietary right to inspection - Whether inspection discretionary in court's supervisory jurisdiction - Application granted - Orders made for inspection to enable meaningful scrutiny of administration of trusts - O'Rourke v Darbishire [1920] AC 581, Schmidt v Rosewood Trust Ltd [2003] UKPC 26; [2003] 2 AC 709, Deutsch v Trumble [2016] VSC 263, (2016) 52 VR 108; ; considered.
1. Kairu ('Erica') Chan personally ( the first plaintiff) and in her capacity as the executrix of the estate of her late husband, Adrian Valmorbida (deceased)( the second plaintiff) is the moving party in this litigation. Shortly after the death of her husband, Adrian Valmorbida, aged 57, on 4 August 2016, after a long battle with cancer, there was a falling out between Kairu Chan and her two young daughters, Xuan Valmorbida, born 6 September 2006, and Ruowei Valmorbida, born 27 August 2012, and the Valmorbida family.
2. In 2017 three separate proceeding were issued in this Court, including this proceeding (the 'Trustee Removal Proceeding').
3. Admarval Pty Ltd ('Admarval', the third plaintiff) is a company that, prior to his death, was controlled by Adrian and is now controlled by Kairu Chan. As well as holding all of the shares in Admarval, Kairu Chan is and since 26 October 2016 has been the sole director of Admarval.
4. From 23 May 2006 when the Admarval Trust was established until December 2016, Admarval was trustee of the Admarval Trust. The Principals (protectors) of the trust as named in the original trust deed were Adrian and his father Mariano Valmorbida. On 12 February 2016 Adrian and Mariano appointed Valmorbida Custodians Pty Ltd ('VCPL') as the Principal of the trust.
5. Adjoval Pty Ltd ('Adjoval', the fourth plaintiff) is trustee of the Adrian Valmorbida Family Trust ('AVFT'). Adjoval is a company also controlled by Kairu Chan. It was added as a plaintiff to this proceeding on 24 July 2020.
6. VCPL (the first defendant) was incorporated on 15 December 2015, at which time Adrian and Mariano were the only directors. Each held two of the four issued shares in VCPL. On 23 September 2016 Mariano appointed Ivan Rizzo and Luisa Valmorbida, a cousin of Adrian and the niece of Mariano as additional directors of VCPL. The shares in VCPL previously held by Adrian are now held by Kairu Chan.
7. Golden Fin Pty Ltd ('Golden Fin', the second defendant) is, and since 2004 has been, the trustee of the Ferval Trust. There are two ordinary shares issued in Golden Fin. One is held by Mariano, the other, by Kairu Chan. The directors of Golden Fin from 31 March 2014 were Adrian, Mariano and Luisa Valmorbida. Following the death of Adrian, Mariano and Luisa continued on and remain as the current directors.
8. The Ferval Trust was established on 2 May 1988. In 2004, Adrian became a joint guardian of the Trust with Mariano. Kairu Chan and her two children are Principal Beneficiaries of the Ferval Trust. Adrian was also a Principal Beneficiary of the Trust prior to his death.
9. Maradval Pty Ltd ('Maradval', the third defendant) was incorporated in December 2016. Mariano is the sole director and shareholder of that company. Shortly after Maradval was incorporated, on 7 December 2016, VCPL removed Admarval as trustee of the Admarval Trust and appointed Maradval in its place.
10. Mariano and Adrian are the Primary Beneficiaries named in the Admarval Trust Deed. Kairu Chan and her two daughters are Secondary Beneficiaries of that Trust. Adjoval, as trustee of AVFT, a trust in which at least one Beneficiary has a beneficial interest, is a Tertiary Beneficiary of the Admarval Trust.
11. Vinrose Pty Ltd ('Vinrose', the fourth defendant) is trustee of the Keck Trust. From 20 May 1986 until the death of Adrian on 4 August 2016, Adrian and Mariano were the directors of Vinrose. On 5 August 2016, the day after Adrian died, Mariano appointed Luisa Valmorbida as a director. The current directors of Vinrose are Mariano and Luisa.
12. The Keck Trust was established on 20 June 1980. The trust deed provides that the Principal Beneficiaries are the children of Mariano. On 30 June 2004 the trustee exercised its power under the trust deed to exclude Adrian's two siblings, Nadia and Elise from the class of Principal Beneficiaries. In 2008, Mariano appointed Adrian joint guardian of the Keck Trust. Prior to Adrian's death, the Keck Trust was jointly controlled by Adrian and Mariano. As the widow of a Principal Beneficiary, Kairu Chan is a Secondary Beneficiary of the Keck Trust.
13. Mariano Valmorbida (the fifth defendant) was born on 28 April 1931. In August 2016 when Adrian died, Mariano was aged 85. At his instigation, but on the application of the Kairu Chan parties, Mariano was added as a defendant to this proceeding on 24 July 2020. No relief is sought against him personally by the amended statement of claim filed pursuant to leave granted on 24 July 2020.
14. In the Trustee Removal Proceeding, detailed orders sought by the Kairu Chan parties include:
(a) a declaration that Admarval is the Trustee of the Admarval Trust,
(b) an order that Maradval deliver up the assets of the Admarval Trust to Admarval,
(c) orders for the payment of substantial sums of money from Maradval to the estate of Adrian Valmorbida,
(d) an order that an independent trustee be appointed as trustee of the Keck Trust in substitution for Vinrose,
(e) an order that an independent person or entity be appointed as guardian of the Keck Trust in substitution for VCPL, and
(f) an order that an independent trustee be appointed as trustee of the Ferval Trust in substitution for Golden Fin.
15. Proceeding 01845 of 2017 is a related proceeding involving two of the same protagonists. Golden Fin is the plaintiff in that proceeding and Kairu Chan is the defendant (the Golden Fin Proceeding). The relief sought by Golden Fin in that proceeding includes:
(a) an order that Kairu Chan, in her capacity as executrix of the estate of Adrian Valmorbida, transfer to Golden Fin the title to a property at 21C Avoca Street, South Yarra, and
(b) an order that Kairu Chan transfer to Golden Fin title to the property located at 19 Avoca Street, South Yarra.
16. In 2017 a proceeding was issued by Mariano seeking rectification of Adrian Valmorbida's will (the 'Rectification Proceeding'). Not long after the hearing, the Court received a request from the parties that delivery of the reasons be delayed to enable the parties to engage in discussions to seek to resolve the disputes between them. In March 2019, after a number of unsuccessful attempts to resolve the disputes, including with the assistance of Ray Finkelstein QC as mediator, the parties requested that the Court deliver judgment in the Rectification Proceeding. The Court delivered its judgment on 5 June 2019.[1]
17. In 2007, Golden Fin became registered as proprietor of 17 Avoca Street, South Yarra.
18. In 2007 Admarval in its capacity as trustee for the Admarval Trust entered into the first of three loan facilities with the Bendigo & Adelaide Bank ('Bendigo Bank'), the first facility having a $25m limit.
19. In August 2008, Golden Fin became the registered proprietor of 21C Avoca Street, South Yarra, the property adjoining 17 Avoca Street.
20. In May 2013, Adrian Valmorbida and Kairu Chan, as joint tenants as to 90%, and Golden Fin as to 10%, became registered as the proprietors of 19 Avoca Street, South Yarra, also an adjoining property.
21. The Kairu Chan parties allege that Adrian and his father Mariano decided in about 2013 that Golden Fin would develop the Avoca Street properties by constructing five units on 17 Avoca Street (to be let out by Golden Fin) and a house on 19 and 21C Avoca Street for Adrian and Kairu Chan and their children. It is alleged that in order to fund the development, Admarval was to obtain bank finance, Golden Fin as trustee of the Ferval Trust was to pay the expenses of the development and Vinrose as trustee of the Keck trust was to distribute money to Admarval so it could pay expenses of the development and so as to enable Admarval to repay finance obtained from Bendigo Bank.
22. In December 2014 21C Avoca St was transferred by Golden Fin to Adrian and he became registered as the sole proprietor of that property.
23. In the Golden Fin Proceeding, Golden Fin alleges that Adrian procured the transfer of 21C Avoca Street without the informed consent of Mariano and for no consideration and, as a result, the property is held on trust for Golden Fin. The Kairu Chan parties allege that 21C Avoca Street was distributed by Golden Fin to Adrian as a Primary Beneficiary of the Ferval trust and at the same time, land in Reservoir was distributed to Mariano as a Secondary Beneficiary.
24. The Kairu Chan parties allege that in late 2015, Admarval entered into a $3.345m funding facility for the development of the Avoca Street properties. Admarval borrowed funds from Bendigo Bank for the purposes of on-lending those funds to Golden Fin. Adrian, Mariano and Adjoval as trustee for the AVFT provided cross-collateralised security in support of that facility.
25. In June 2016, Golden Fin contracted with Project Group Construction Pty Ltd to build the development at Avoca Street. Work began on each of the titles, including the demolition of existing improvements and construction work.
26. On 17 June 2016, the remaining 10% interest of Golden Fin in 19 Avoca Street was transferred to Adrian and Kairu Chan, leaving them as the sole registered proprietors of that property. It is alleged by Golden Fin in the Golden Fin Proceeding that the transfer was procured by Adrian in breach of his duties as a director.
27. In the Golden Fin Proceeding, Golden Fin further alleges that the initial registration of Adrian and Kairu Chan as joint tenants as to 90% on the title to 19 Avoca Street was without consideration and without the informed consent of Mariano, as a result of which it is said that the whole of the property at 19 Avoca Street is held on trust for Golden Fin.
28. Probate of Adrian's will was granted to Kairu Chan on 7 October 2016.
29. On 11 October 2016, Kairu Chan became the sole director and shareholder of Admarval.
30. On 19 October 2016, Golden Fin lodged a caveat on the properties at 19 and 21C Avoca Street, South Yarra, claiming freehold interest under an implied/resulting/constructive trust.
31. On 24 October 2016, the directors of Golden Fin unsuccessfully demanded that Kairu Chan transfer 19 Avoca Street, South Yarra to Golden Fin and gave notice they would tell the builder to stop work on construction of the family home at 19 Avoca Street.
32. The Kairu Chan parties allege that in late 2016, Mariano and Luisa Valmorbida caused Golden Fin to instruct the builder to halt all further works on the Avoca Street development.
33. The Kairu Chan parties further allege that in around December 2016, by removing Admarval as trustee of the Admarval Trust and replacing it with Maradval, Mariano, Maradval and VCPL were involved in actions that caused a default in the facilities with the Bendigo Bank. It is alleged that following those actions the bank froze further advances and would not approve a $6.5m loan to build the family home. These actions are alleged to have been taken in bad faith and in breach of duty by VCPL.
34. It is an objective fact that there has been no construction work on any of the Avoca Street properties since late 2016. For the home to be constructed on 19 Avoca St, work ceased at the point of pouring the first floor slab. For the unit development, work ceased at a point when construction of two of five planned floors was underway. Four years on the Avoca Street properties remain as incomplete building sites.
35. In the Trustee Removal Proceeding, there are claims and counterclaims between the parties in relation to various financial transactions concerning the three trusts.
36. The Kairu Chan parties allege that, following Adrian's death, Mariano has had effective control over the affairs of Maradval, Golden Fin, Vinrose and VCPL. They allege that he has shown a want of proper fitness and capacity to execute the Trusts, including based on pleadings filed on his instructions that 'cast doubt' as to whether or not he signed certain documents and as to him having 'no recollection' of signing the construction contract for the Avoca Street development.
37. The Trustees and the Valmorbida parties are suspicious of the administration of the three trusts by Adrian prior to his death.
38. Historically, the income of the Keck Trust has been very substantial. The financial statements of the Keck trust are exhibited.[2] The income received by the Keck trust is summarised in a table forming part of the Kairu Chan parties' submissions:
In the years ending 30 June 2014 to 2017, according to the financial accounts, the Keck Trust distributed all its income to the Admarval Trust. In the year ending 30 June 2018 the Keck Trust accounts record the distribution of $900,000 of income to the Ferval Trust and the balance of its income to the Admarval Trust. In the year 30 June 2019 the Keck Trust Accounts record the distribution of $1,000,000 of income to the Ferval Trust and the balance of income to the Admarval Trust.
39. One key area of dispute concerns what are described in the pleadings as the 'equalisation transactions'. The Kairu Chan parties allege that as part of the equalisation transactions, as at 30 June 2015:
(a) Adrian's loan account balance with Admarval as Trustee of the Admarval Trust, previously standing at $9.336m credit was reduced to a $301,000 credit and;
(b) the loan account of Mariano with Admarval as Trustee of the Admarval Trust, was altered from a debit balance of $1.953m to a credit balance of $301,000.
The Kairu Chan parties allege that the equalisation transactions were not agreed to by or made with the consent of Adrian. The Valmorbida parties do not agree. They allege an agreement as to equalisation was arrived at between Adrian and Mariano.
40. The Kairu Chan parties contend that the Valmorbida parties have produced three sets of accounts for the Admarval trust for the year ending 30 June 2015.[3] Each of those sets of accounts record equal loan account balances for Adrian and Mariano after adjustment, but for different amounts:
(a) $417,117.83 debit balance for both Adrian and Mariano in the trial balance dated 27 September 2016;
(b) $387,377.42 debit balance in the loan account ledger for Adrian provided on 19 May 2017; and
(c) $301,801.40 credit balance for both in the financial statements provided on 11 October 2017.
41. The Valmorbida parties have not filed evidence in response to this application that seeks to provide an explanation for the three different versions of the 2015 accounts, accounts prepared between Adrian's death and 11 October 2017.
42. A further area of dispute on the pleadings is the allegation by the Kairu Chan parties that in breach of duties owed, the Valmorbida parties administered the Admarval Trust in each of the 2015 and 2016 financial years as if distributions of income had been made, when in fact they were not made. They allege that Maradval prepared the accounts of the Admarval Trust in breach of duty and that there was false accounting by the accountants, Morans, purporting to record never agreed 'equalisation transactions'.
43. The Kairu Chan parties allege that in each of the 2015 and 2016 financial years Admarval as trustee of the Admarval trust:
(a) did not make any written declaration as to the income of the trust (in 2015, $2,755,176.59 after expenses, in 2016, $2,093,056 after expenses),
(b) did not make any classification or determination of income in accordance with the trust deed.
They contend that the consequence of these omissions is that under the Admarval trust deed Adrian had an immediate and indefeasible vested interest in his share of the income, namely, $1,377,588.30 relating to 2015 and $1,046,528 relating to 2016, to which Kairu Chan as his executrix is entitled.
44. Various allegations are made by the Kairu Chan as to breaches by the Valmorbida parties concerning the preparation of the accounts of the Admarval trust for the 2015 and 2016 financial years including allegations of false accounting and failure to keep accounting records.
45. The Kairu Chan parties also allege that Golden Fin acted in breach of trust in each of the financial years ended 30 June 2018 - 30 June 2020 including by paying the legal costs of Mariano of the Rectification Proceeding and the litigation costs of Vinrose and Admarval.
46. The affidavit evidence in support of this application draws attention to 'numerous large balancing entries' appearing in the Admarval Discretionary Trust general ledger including 'historical balancing' of $14,088,982.75 for 30 June 2018.[4]
47. According to the accounts of the Admarval Trust, for the year ended 30 June 2019, one half of the profit of the Trust was distributed to the Adrian Valmorbida Family Trust of which Adjoval is trustee.[5] The Kairu Chan parties allege no such distribution was made.
48. In around May 2019 the AV Children's Trust was established, it appears by interests associated with Mariano.
49. For the year ended 30 June 2019, the Admarval Trust, according to its accounts, distributed its profit of $5.053m as to one half to the AV Children's Trust and as to the other half to Mariano Valmorbida Family Trust. The Kairu Chan parties allege that Maradval exercised its discretion to make such distributions as trustee without acting in good faith.
50. There has been a long history of mediation between the parties in an attempt to resolve these unfortunate disputes. Without prejudice communications continued between the parties until September 2019.
51. The application for inspection of trust records arises in the context of the unresolved disputes between the parties, including as framed by the pleadings in the two current proceedings. Orders regarding discovery made in those proceedings, both in the past, and on 24 July 2020 by agreement, are relevant to the inspection Orders sought by the Kairu Chan parties and to the proposed form of order for which the Trustees contend.
52. Orders were made for discovery on 23 August 2019. Discovery was made by VCPL and by the Kairu Chan parties by affidavits of documents filed on 11 February 2020 and 5 March 2020.
53. Mr Hughes, solicitor for the Trustees, deposes to the total number of documents discovered to date being approximately 4400. The Trustees were ordered on 5 December 2019 to make discovery by 18 December 2019. Maradval and Vinrose have not complied with that order.
54. The Trustee Removal Proceeding and the Golden Fin Proceeding came before the Court for directions on 24 July 2020. At that time, orders were made by consent providing for the joinder of Adjoval Pty Ltd as the fourth plaintiff and Mariano Valmorbida as the fifth defendant and for amended pleadings.
55. On 24 July 2020 Orders were also made in the Trustee Removal Proceeding that the parties confer and seek to agree upon categories of further discovery by 25 September 2020 and that discovery be made by 16 October 2020.
56. Following discovery, the proceedings are again be referred to a mediator, such mediation to take place after 23 October 2020. If the matters do not resolve at mediation, they will be fixed for trial as soon as practicable in 2021.
57. When the two proceedings came before the Court for directions on 24 July 2020, the Kairu Chan parties sought an order for inspection of Trust records of each of the Admarval Trust, the Ferval Trust, and the Keck Trust. As those orders were opposed, I made directions for the filing of affidavit evidence, submissions and proposed orders. I indicated that I would deal with the application for inspection of the trust records on the papers.
58. On 1 August 2020, the Kairu Chan parties filed written submissions together with a proposed form of order. They rely upon three affidavits of Susana Ford affirmed 3 June 2020 ('first Ford affidavit'), 17 July 2020 ('second Ford affidavit') and 31 July 2020 ('third Ford affidavit'). The exhibits to those affidavits are voluminous.
59. The second to fourth defendants ('the Trustees') filed submissions on 8 August 2020. They filed an affidavit of Lachlan Hughes sworn 8 August 2020, together with exhibits on which they rely. The Trustees provided a draft proposed form of order.
60. On 13 August 2020, the Kairu Chan parties filed reply submissions and a revised form of order.
The issues arising on the inspection application
61. The first question that arises on the inspection application is whether a beneficiary has a prima facie entitlement to inspect and copy all 'trust documents' ('the proprietary approach') or alternatively, whether there is no such right and the correct approach is that the Court has a discretion whether or not to make an order for inspection.
62. The second question, if the proprietary approach is the correct approach to be applied:
(a) does the proprietary approach have application in the present circumstances:
(i) if Kairu Chan and her children are discretionary objects only, does the proprietary approach apply?;
(ii) due to a fixed trust having arisen, in circumstances contended for on behalf of the Kairu Chan parties.
(b) if the proprietary approach has application, should the class of documents ordered to be made available for inspection be a limited class only or subject to any and, if so, what 'carve-outs'.
63. The third question, if the correct approach is the discretionary approach:
(a) is it appropriate for an order for inspection of trust documents to be made and,
(b) if so, what is the appropriate scope and content of any such inspection order?
64. The revised draft orders submitted on behalf of the Kairu Chan parties contend that substantive orders should be made 'in the first instance confined to trust documents dating from 1 July 2013', as follows:
(a) provide the Plaintiffs with a list of documents or categories of documents of the Ferval Trust over which objection is taken to inspection by a beneficiary together with a short statement of the basis of the objection.
(b) at its own expense, provide to the Plaintiffs and their legal and accounting representatives a copy of such of the documents of the Ferval Trust as are kept in electronic form and that are not subject to objection to production.
(c) at its own expense, provide to the Plaintiffs and their legal and accounting representatives reasonable access to the documents of Ferval Trust as are kept in hard copy and that are not subject to objection to production.
(a) provide the Plaintiffs with a list of documents or categories of documents of the Admarval Discretionary Trust over which objection is taken to inspection by a beneficiary together with a short statement of the basis of the objection.
(b) at its own expense, provide to the Plaintiffs and their legal and accounting representatives a copy of such of the documents of the Admarval Discretionary Trust as are kept in electronic form and that are not subject to objection to production.
(c) at its own expense, provide to the Plaintiffs and their legal and accounting representatives reasonable access to the documents of Admarval Discretionary Trust as are kept in hard copy and that are not subject to objection to production.
(a) provide the Plaintiffs with a list of documents or categories of documents of the Keck Trust over which objection is taken to inspection by a beneficiary together with a short statement of the basis of the objection.
(b) at its own expense, provide to the Plaintiffs and their legal and accounting representatives a copy of such of the documents of the Keck Trust as are kept in electronic form and that are not subject to objection to production.
(c) at its own expense, provide to the Plaintiffs and their legal and accounting representatives reasonable access to the documents of Keck Trust as are kept in hard copy and that are not subject to objection to production.
(a) the Plaintiffs file and serve any affidavits and submissions in respect of objection to inspection which the Plaintiffs contest.
(b) The Trustees file and serve any affidavits and submissions in answer to any affidavits or submissions.
(c) Any contested objections to inspection be heard on 2020.
65. The Trustee parties contend that more limited orders should be made:
By 4:00PM on 18 August 2020, the second to fourth defendants provide the plaintiffs in writing with details of the arrangements for the plaintiffs and their lawyers and accountants to have access to the accounting records of the Ferval, Keck and Admarval Trusts for the period since 1 July 2013, and the earliest date(s) by which such access can occur.
The first question: what is the correct approach to an application for inspection by the beneficiary of a trust?
66. On one view of the law, as held by the House of Lords in O'Rourke v Darbishire,[6] a beneficiary with a vested or contingent interest under a fixed trust, or an object of a discretionary trust has a prima facie entitlement to inspect and copy all 'trust documents' (the proprietary approach). On another view, as determined by the Privy Council in Schmidt v Rosewood Trust Ltd,[7] there is no such right, and 'no beneficiary (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'.[8] In Schmidt the Privy Council found that it was not the proprietary rights of a beneficiary which gave rise to the Court's power to require disclosure. Instead, the Court considered that the power was founded in the exercise of the Court's inherent jurisdiction over the administration of trusts (the 'discretionary approach').
67. In Deutsch v Trumble,[9] after giving careful consideration to the competing approaches, Hargrave J concluded that he was bound to apply the proprietary approach:
If the plaintiff is right in saying that he is a beneficiary, and if the documents are documents belonging to the executors as executors, he has a right to access to the documents which he desires to inspect upon what has been called in the judgments in this case a proprietary right. The beneficiary is entitled to see all trust documents because they are trust documents and because he is a beneficiary. They are in a sense his own. Action or no action, he is entitled to access to them.
But the right of access of a beneficiary to trust documents arises because of the beneficial interest of the beneficiary in the trust property and it is in that sense that the right may be described as proprietary.
...The beneficiary is entitled to see all the trust documents because they are trust documents and because he is a beneficiary. They are in a sense his own. Action or no action, he is entitled to access to them. This has nothing to do with discovery. The right to discovery is a right to see someone else's documents. A proprietary right is a right to access to documents which are your own.[...] Documents containing professional advice taken by the executors as trustees contain advice taken by trustees for their cestuis que trust, and the beneficiaries are entitled to see them because they are beneficiaries.
... a beneficiary's right to seek disclosure of trust documents, although sometimes not inappropriately described as a proprietary right, is best approached as one aspect of the court's inherent jurisdiction to supervise (and where appropriate intervene in) the administration of trusts. There is therefore in their Lordships' view no reason to draw any bright dividing line either between transmissible and non-transmissible (that is, discretionary) interests, or between the rights of an object of a discretionary trust and those of the object of a mere power (of a fiduciary character).
... whether a discretionary object (or some other beneficiary with only a remote or wholly defeasible interest) should be granted relief at all; what classes of documents should be disclosed, either completely or in a redacted form; and what safeguards should be imposed (whether by undertakings to the court, arrangements for professional inspection, or otherwise) to limit the use which may be made of documents or information disclosed under the order of the court.
In Schmidt v Rosewood Trust Ltd, the Privy Council recently stressed that the right to seek the intervention of a court of equity to exercise its inherent authority to supervise and, if necessary, to intervene in the administration of trusts, 'does not depend on entitlement to a fixed and transmissible beneficial interest'. In a sense, the Commissioner's submissions tend to prove too much.
There is a general rule that a cestui que trust has a proprietary interest in and a right, therefore, to inspect trust documents (O'Rourke v Darbishire [1920] AC 581 at p. 626; Re Fairbairn [1967] VicRp 72; [1967] VR 633) ...
... the approach in Schmidt should be adopted by Australian courts. The decision should not be regarded as abrogating ... 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.
69. In Palmer v Ayres,[13] to which the Trustees refer in their submissions, Gageler J cited the decision in Schmidt in support of the proposition that the Court has power to compel the provision of information by a trustee. The reference to that power was in the context of consideration by His Honour of the Court's jurisdiction to supervise and to intervene in the administration of a trust.[14]
70. It was submitted on behalf of the Trustees that the NSW authorities, the obiter dicta of the Victorian judges and the citation of Schmidt by Gageler J in Palmer v Ayres reflect a more general trend towards acceptance of the discretionary approach and rejection of the proprietary approach.
71. The reference to Schmidt by Gageler J in a footnote, as part of a discussion of the equitable jurisdiction of the Court to supervise the administration of trusts, does not advance the resolution of the two competing approaches. I accept the submission of the Kairu Chan parties that I should follow the decision of Hargrave J in Deutsch. Not only is it not 'obviously wrong',[15] it is a decision arrived at after a careful and detailed consideration of the competing authorities. Even if there is a trend in favour of the discretionary approach, just as in Deutsch, Hargrave J concluded it was not for a single judge to determine that, in light of the Privy Council's decision in Schmidt, the proprietary approach no longer represents the law in Australia, the same applies in this case.[16] Even more so when, as shall be seen, on the facts of the present case, the proprietary approach has no application.
The Second Question: Does the Proprietary approach have application in this case?
72. It is accepted by the parties that it is insufficient to attract the operation of the proprietary approach that the plaintiffs are discretionary objects only of the three trusts. It is common ground, as stated by the authors of Jacobs' Law of Trusts in Australia that:
Where the beneficiaries wanting information are not beneficiaries of a strict trust, but are merely potential objects of the exercise of a discretionary power of appointment over the trust fund, whether it be a bare power or a trust power, appeals to proprietary rights cannot assist, because they have none.[17]
73. Kairu Chan and Adjoval are discretionary beneficiaries of the Admarval trust and Kairu Chan is a discretionary beneficiary of the Keck trust. Because the trusts are discretionary trusts, none of the Kairu Chan parties is the holder of a proprietary right. The proprietary approach has no direct application to them.
74. In an endeavour to overcome that difficulty, the Kairu Chan parties submit that because there was no income determination for the Admarval trust in 2015 and 2016, and for the Keck trust in 2016, by operation of the provisions of the trust deeds, the estate of Adrian is to be treated as having become entitled to half of the income of the Admarval trust for each of the 2015 and 2016 financial years, and to all of the income from the Keck trust for the 2016 financial year. It is submitted that Kairu Chan as executrix of the estate of Adrian is a person with a fixed entitlement to trust income from the two trusts with the consequence that she has a proprietary right in that capacity to the trust documents.
75. Both the facts alleged by the Kairu Chan parties concerning the Admarval trust in 2015 and 2016 and the Keck trust in 2016 and the legal consequences of those facts are in issue in this proceeding.[18] The Trustees submit, and I accept, that in those circumstances it is neither possible nor appropriate for the Court to make determinations of fact and law on this application when those same matters will arise for determination at trial.[19]
76. Although the proprietary right of a beneficiary to inspect exists independent of court action,[20] here the court action itself will determine the existence or otherwise of the required basis for the proprietary right. It is inappropriate to make a determination as to the existence or otherwise of a proprietary right on the part of Kairu Chan in her capacity as executrix of the estate of Adrian on this application. That is a matter for trial.
77. As a result, the Court cannot be satisfied that the proprietary approach has application in this case. Even if it did have application, it could only have application to entitle Kairu Chan as a fixed income beneficiary to obtain access to trust documents, first, of the Admarval trust for the 2015 and 2016 years and second, of the Keck trust, for the 2016 year. That is much less than is being sought by the Kairu Chan parties on this application.
78. Because the proprietary approach has no application on the facts, it is unnecessary to decide on the application of that approach, what classes of documents should be made available for inspection, and whether any and if so what 'carve-outs' are appropriate.
79. The next question that arises is whether the Court should make orders for inspection in the exercise of its inherent jurisdiction to supervise, and, where appropriate, intervene, in the administration of trusts. That is, in the application of the discretionary approach.
80. Neither party contended that if the proprietary approach was to be preferred, but had no application on the facts, that by reason of that preference, the Court was precluded from exercising its inherent jurisdiction to make orders in the exercise of its power to supervise the administration of trusts. Both parties contended for orders in the application of the discretionary approach. Where they differ is as to the form and content of those orders.
81. In support of their submissions the Trustees refer to the decision of Macaulay J in Mandie v Memart Nominees Pty Ltd and to the following statement:
Subject to various limitations, broadly speaking a trustee has a duty to provide beneficiaries with accurate information concerning the administration of the trust and to permit examination of documents that relate to the trust and its administration.[21]
82. In AIT Investment Group Pty Ltd v Markham Property Fund No 2 Pty Ltd, Bergin CJ, after referring to Schmidt, summarised the applicable principles:[22]
It involves the following propositions: (a) the object of a discretion, including a mere power, may apply to the court for access, as well as beneficiaries with a 'fixed' interest; (b) the power to order disclosure is 'one aspect of the court's inherent jurisdiction to supervise, and if necessary to intervene in, the administration of trusts'; (c) the power to order inspection is discretionary; and (d) the court may have to 'balance' the competing interests of different beneficiaries, the trustees and third parties, with disclosure being limited and safeguards being put in place.
83. In Wright v Stevens, after reviewing the authorities, and concluding that the discretionary approach applied, Hallen J observed**:**
The power to order inspection is discretionary in the sense that it involves assessment and judgment. The Court exercises its jurisdiction as a court of equity, exercising its own judgement as to whether disclosure ought to be made at all and, if so, to what extent and on what conditions.[23]
84. The Trustees submit, relying upon Wright v Stevens, that when applying the discretionary approach, the Court is involved in a balance of competing interests, and its role is to determine the extent to which information should be disclosed through that balancing process.[24]
Drawing these threads together, we consider the matters that need to be evaluated in relation to an application for disclosure of trust documents include the following:
(a) The documents that are sought. Where a number of documents are sought, each document (or class of document) may need to be evaluated separately, given that different considerations may apply to basic documents such as the trust deed and more remote documents such as the settlor's memorandum of wishes.
(b) The context for the request and the objective of the beneficiary in making the request. The case for disclosure will be compelling if meaningful monitoring of the trustee's compliance with the trust deed in the administration of the trust could not otherwise occur. In this regard, it may be relevant that disclosure has been made to other beneficiaries. However, assuming no improper motive on the part of[2017] 1 NZLR 320 at 339 the beneficiary seeking information, the fact that disclosure has previously been made to other beneficiaries will rarely be a decisive factor against disclosure.
(c) The nature of the interests held by the beneficiary seeking access. The degree of proximity of the beneficiary to the trust (or likelihood of the requesting beneficiary or others in the same class of beneficiaries benefitting from the trust) will also be a relevant factor.
(d) Whether there are issues of personal or commercial confidentiality. Recognition should be given to the need to protect confidential matters of a personal or commercial nature. The Court should also take into account any indications in the trust deed itself about the need for confidentiality in relation to commercial dealings or private matters in relation to particular beneficiaries.
(e) Whether there is any practical difficulty in providing the information. If the information sought by the person requesting the information would be difficult or expensive to generate or collate, that may be a factor against requiring its disclosure.
(f) Whether the documents sought disclose the trustees' reasons for decisions made by the trustees. It would not normally be appropriate to require disclosure of the trustees' reasons for particular decisions.
(g) The likely impact on the trustee and the other beneficiaries if disclosure is made. In particular, would disclosure have an adverse impact of the beneficiaries as a whole that would outweigh the benefit of disclosure to the requesting beneficiary? In the case of a family trust, this may include the possibility that disclosure would embitter family feelings and the relationship between the trustees and beneficiaries to the detriment of the beneficiaries as a whole. However, on the other hand, non-disclosure may have a similar effect.
(h) The likely impact on the settlor and third parties if disclosure is made. The impact that disclosure will have on the settlor and/or on third parties will need to be considered.
(i) Whether disclosure can be made while still protecting confidentiality. This may require that copies of documents supplied to a beneficiary are redacted to ensure non-disclosure of confidential information.
(j) Whether safeguards can be imposed on the use of the trust documentation. Examples would include undertakings and inspection by professional advisers only and other safeguards to ensure the documentation is used only for the purpose for which it was disclosed.
86. The exercise of the discretion in each case, with a view to providing beneficiaries with accurate information concerning the administration of the trust and to permit examination of documents that relate to the trust and its administration, is a product of the specific facts and circumstances in the particular case. Nevertheless, the list in Erceg is helpful and a number of the factors listed are relevant to the exercise of the discretion in the present case.
87. Separately, the Kairu Chan parties submit that the following principles of law are relevant to the determination of the application (citations in original):
(1) It is the duty of the trustee to render the trust accounts to eligible beneficiaries when demanded and to have them ready.[27]
(2) Trustees must maintain accurate accounts and have a duty to correct any error that have occurred in their accounts, whether by reason of mistake or negligence.[28]
(3) Section 286 of the Corporations Act 2001 (Cth) requires a company to keep records that explain its transactions. This expressly extends to "transactions undertaken as trustee".
(4) A trustee of more than one trust must keep the accounts of each trust separate and the trustees' duties relative to one trust should be discharged without regard to their duties relative to any other.[29]
(5) Where accounts have not been kept the court will allow bank books, cheque books, solicitors' accounts and other documents belonging to the trustee or the trustee's estate to be inspected.[30]
(6) Failure on the part of the trustee to maintain and produce proper accounts is a continuing breach of trust, for which, if the general welfare of the trust is at risk, the remedies include the appointment or a receiver[31] or removal from office.[32]
(7) Book entries in accounts must reflect transactions in fact made by the relevant parties.[33] The duty to keep accounts extends to keeping evidence of payments.[34]
The competing submissions as to the discretion
88. The parties submissions dealing with matters said to be relevant to the exercise of the discretion to order inspection and as to the scope of documents to be inspected are detailed.
89. The Kairu Chan parties rely on matters including the following:
(1) The [Trustees] have conceded that the [Kairu Chan parties ] are entitled to inspect some trust documents, stating on 19 June 2020 that a list of documents that the Plaintiffs would be 'entitled to inspect was being prepared.'[35]
(2) The [Kairu Chan parties] have twice asked for the promised list - on 26 June 2020[36] and on 13 July 2020[37] - but have neither received the list nor an answer to the request.
90. The Kairu Chan parties contend that while the Trustees have told the Court that they are responsive to requests for information, their actions reflect limited responsiveness. By way of example, the substantial transactions recorded in the accounts entered by reference to 'emails from Anton' have been provided, but the 'emails from Anton' that might be expected to provide an explanation as to the basis of the accounting entries have not.[38]
91. The Kairu Chan parties also complain that the Trustees are not responsive to straightforward requests - for example, 'if there is any evidence that income determinations of the Keck Trust in 2016 and the Admarval Trust in 2015 and 2016 were made, could that evidence be produced?' No evidence has been produced.
92. Kairu Chan is a shareholder in each of the three trustee companies, Adrian was a director of each of the trustee companies. Kairu Chan has not been made a director of each of the trustee companies.
93. The Kairu Chan parties also rely on the following matters:
(6) The documentary evidence establishes that, at the very least, the books of the Admarval Trust are based on transactions that simply could not have occurred.
(7) There is uncertainty as to where the documents of the three trusts are physically located, and who has custody of them. The failure to give a simple answer to the question 'where are those documents located' is itself a cause for disquiet.[39]
(8) As executrix of her deceased husband's estate, Kairu Chan legitimately seeks to enquire into how it is said that a $9 million credit balance in Adrian's loan account with the Admarval Trust can turn into ... a credit balance of $301,000-odd. The underlying transactions, if any, plainly need to be investigated. ... Maradval is not about to investigate them itself.
(9) Especially when serious questions are raised about the administration of the Trusts, including their accounts and their expenditure on legal costs, the Trustees should not be permitted to carry on the administration of the Trusts in secret, without any supervision or accountability.
94. In response the Trustees submit that the Court should not make the Kairu Chan parties' proposed orders in the exercise of its discretion, for reasons including that the Trustees do not seek to prevent the Kairu Chan parties from having access to the accounting records of the trusts, and are willing to give such access as soon as practicable. The accounting records will include the financial statements and ledgers and the primary vouchers and receipts. The accounting records are kept by the trusts' book-keeper, Grace Culvenor, and by the accountants, Moran Accountants.
(a) The documents the plaintiffs seek are at large, and they exceed the legitimate or permissible scope of documents which the plaintiffs may expect to inspect.
(b) The plaintiffs have already had access to a substantial volume of documents, as set out in Mr Hughes' affidavit and the annexure thereto.[40]
(c) The plaintiffs will shortly be given ... documents by way of further discovery in the proceeding ...
(d) It is inefficient, expensive and time-consuming for the Trustees to have to undertake multiple and overlapping document review and production exercises ... in a context where further discovery has already been ordered to be provided.
(e) It is also inefficient, costly and an imposition upon Court resources to have satellite disputes in relation to document access issues, as is contemplated by the [Kairu Chan parties].
96. The Trustees also relied upon the following matters:
(a) In accordance with their Orders, the Trustees will facilitate access to the accounting records of the trusts.
(b) That access will be available to all the beneficiaries, not just the Kairu Chan parties.
(c) The access should not be at the Trustees' sole expense.
(d) The Kairu Chan parties will be at liberty to seek further documents, as part of the further discovery in the proceeding or in applications for access to trust documents, if so advised following their inspection of the accounting records.
(e) the Trustees' Orders best serve to give effect to the 'overarching purpose' under the Civil Procedure Act 2010 (Vic), because the Kairu Chan parties have already had access to many documents and a further discovery process been ordered.
97. The Kairu Chan parties provided reply submissions. It is unnecessary to refer to the content of those submissions with one exception. Where they raise new matters of substance, those matters are considered below The exception concerns the submissions relating to minutes of meetings of the Trustees:
(a) On 5 June 2020 Mr Hughes referred in correspondence to minutes upon which the accounts prepared for the Admarval Discretionary Trust in 2015 and 2016 and the Keck Trust in 2016 were prepared.
(b) Other evidence suggests that no such minutes exist.
(c) Given that the existence or otherwise of these minutes is central to the issue as to whether significant sums of money are held by the trustees on fixed trust (and the proper jurisdictional basis for an order for inspection), this is something the trustees have no business being coy about.
(d) It should be a simple matter for such documents to be provided. If they exist, they will be in the possession of the solicitors or a representative of a trustee, and can readily be provided electronically.
(e) The inexplicable refusal of the relevant Trustees to either provide the relevant minutes or, if they do not exist, admit that fact is sufficiently troubling in itself to justify their removal from the relevant Trusts.
Previous discovery orders and requests for trust documents
98. Orders were made in the Trustee Removal Proceeding and in the Golden Fin proceeding on 1 March 2019 for the exchange of lists of categories of documents to be discovered in both proceedings. The Kairu Chan parties filed their categories list on 15 March 2019. No objection was taken to the category list.
99. On 29 March 2019 orders were made that discovery in each proceeding would be regarded as discovery in the other proceeding.
100. As stated above, on 5 December 2019 the Trustees were ordered to make discovery based on the then current pleadings by filing an affidavit of documents, making discovery in accordance with the 15 March 2019 categories list by 18 December 2019. Maradval and Vinrose have not complied with that order.
101. From at least April 2020 there have been a series of specific requests for particular documents made by Arnold Bloch Liebler ('ABL'), the solicitors acting on behalf of the Kairu Chan parties. In response to such requests, Lawson Hughes Peter Walsh ('LHPW') acting on behalf of the Trustees, have provided some financial documents to the Kairu Chan parties:
(a) On 7 April 2020 ABL requested copies of the draft or final 2019 accounts for the entities in the Valmorbida group. On 15 April 2020 LHPW advised the 2019 accounts were not finalised and that draft financials were yet to be prepared.[41] On 22 May 2020 the financial statements, trial balance and 2019 tax return for 2019 for each of the Keck Trust, Admarval Discretionary trust, Ferval Trust, Valmorbida Unit Trust No 11, and the Tremon Investment trust and the Ferval trust were provided to ABL.[42]
(b) On 9 June 2020 ABL made a request for copies of the 2019 general ledger and list entries concerning each of those trusts whose financial information had been provided.[43] That information was subsequently provided.[44]
(c) On 15 June 2020 ABL requested copies of the general ledger, accounts receivable, trust records and primary source information relating to the 2017, 2018 and 2019 accounts.[45]
(d) Requests were also made for the provision of bank balances and bank statements. On 10 June 2020 a summary of bank balances as at 1 June 2020 was provided by LHPW.[46] On 19 June 2020 some bank statements were provided.[47] On 29 June 2020 the Trustees provided:
(a) a number of copy bank accounts statements (but incomplete) for various accounts held by Vinrose, Admarval, Maradval and Golden Fin;
(i) 'General Ledger (period 1 June 2016-28 June 2020)' for the Keck Trust;
(ii) 'General Ledger (period 1 June 2018-28 June 2020)' for Admarval;
(iii) 'General Ledgers' for the period 1 June 2017-30 June 2020 for Maradval atf Admarval Discretionary Trust; and
(iv) 'General Ledger (period 1 June 2016-30 June 2020)' for Golden Fin.[48]
102. Not all of the information requested by ABL was provided. On 13 July 2020 ABL followed up outstanding requests for information.[49] A detailed list of what was outstanding at that time based upon earlier requests is exhibited to the second Ford affidavit.[50] As that table has been overtaken by subsequent events it is unnecessary to refer to it in any detail.
103. The table of outstanding requests for documents current as at 31 July 2020 reads as follows:[51]
Current cash balance and bank statements: Cash balances for the Trusts. Bank statements for the last twelve months. (ABL letter dated 4 June, paragraph 9(1)).
Admarval Account ending in 085 - 30 June 2019 - to date.
Expected income of the Admarval Discretionary Trust (ADT) and its intended application: What is the expected income of the ADT for the year ended 30 June 2020 and why is no part of that income being earmarked to repay the facility? (ABL letter dated 4 June, paragraph 9(2)).
Partially, in letter dated 19 June 2020. No answer has been provided as to why that income was not earmarked to repay the facility as it currently exists or as refinanced.
Proposed Development of 17 Avoca Street: In paragraph 4 of your without prejudice email dated 1 June 2020 you stated that "The property at 17 Avoca Street is intended to be used as security for future borrowings to fund the developments. The current $10m is fully drawn and additional security will need to be offered when funding for the continuation of the development is required". Please provide a summary of what is proposed regarding the proposed development(s) referred to in this paragraph and copies of all trust documents (presumably trust documents of the Ferval Trust) relating to the proposed developments. Given the timing involved, we ask that you provide us with a summary of what is proposed in the first instance, and the documents as soon as possible after that (ABL letter dated 4 June, paragraph 9(3)).
To be informed about the due administration of the Ferval Trust.
No. LHPW letter dated 5 June 2020 promised a response by 10 June 2020 but no response given.
Bank Statements: Bank statements for all bank accounts held during the period from 1 June 2016 to date for the Trusts.
Admarval Account ending in 938: missing statements for the period 1 June 2016 to 1 July 2018.
Admarval Account ending in 261: we received statements for the period 2 January 2016 to 12 July 2019 when "account finalised". Please confirm that the account was closed in July 2019.
Maradval Account ending in 526: missing statements for the period 1 July 2016 to January 2017.
GF Account ending in 313: missing statements for the period 1 July 2016 to 1 June 2017.
GF Account ending in 212: missing statements for the period between 1 July 2019 to date.
GF Account ending in 018: missing statements for the period 1 July 2016 to 28 June 2019.
GF account ending in 297: missing statements for the period 1 July 2016 to 28 June 2019.
GF Account ending in 328: missing statements for the period 1 July 2016 to 28 June 2019.
Vivik Account ending in 680: missing statements for the period 1 July 2016 to 28 June 2019.
MYOB files for the period from 1 June 2016 to date for the Trusts.
NO. The General Ledgers provided do not satisfy our request.
General ledger entries for the period from 1 June 2019 to date for the Trusts (see ABL) email dated 9 June 2020.
Electronic copies of the general ledger of the ADT provided (native file and spreadsheet export of ledger) (see ABL letter dated 13 July 2020)
Partially. The general ledger provided for the Admarval Discretionary Trust for the period 1 June 2018 to 28 June 2020 has some narrations which appear to be cut-off and are not readable without a particular PDF program.
Documents evidencing accounts receivable and payable: Financial statements, Annual Trial Balance, General Ledger and List Entries for FY2017, FY2018 and FY2019 for the following entities/individuals:
To determine whether the receivable/payable account closing balances for these entities recorded in the accounts of The Keck Trust, The Ferval Trust and ADT match the closing balances recorded in the accounts for each of these entities.
We note that in the case of Sirena Pty Ltd ATF VUT No 9, the VUT No 11, Iconic Food Distribution Pty Ltd, the IL Globo Unit Trust, and the Gumnut Unit Trust the documents requested should be in the possession of Vinrose Pty Ltd as the relevant unitholder.
We note that we have received the financial statement and tax return for Valch Pty Ltd atf AV Children Trust and for Valch Custodians Pty Ltd for FY2019.
We have also received the trust deeds of the AV Children Trust and the AV Children Holdings Trust and the constitutions of Valch Pty Ltd, Valch Custodians Pty Ltd and Valch Holdings Pty Ltd.
Trust records of the Keck Trust relating to journal entries and transactions: Please provide primary source information (as defined below) in relation to the journal entries and transactions that represent the FY2017, FY2018 and FY2019 movements in the below accounts for Vinrose Pty Ltd ATF The Keck Trust:
Trust records of the Ferval Trust relating to journal entries and transactions: Please provide primary source information (as defined below) in relation to the journal entries and transactions that represent the FY2017, FY2018 and FY2019 movements in the below accounts for Golden Fin Ltd ATF The Ferval Trust:
Trust records of the ADT relating to journal entries and transactions: Please provide primary source information (as defined below) in relation to the journal entries and transactions that represent the FY2017, FY2018 and FY2019 movements in the below accounts for Admarval Pty Ltd/Maradval Pty Ltd ATF The ADT.
No, save for the bank statements provided and some information in relation to the AV Children Trust referred to above.
"Primary source information" includes documents which evidence or consist of:
104. It is apparent from the table and the earlier communications exhibited to the Ford affidavits that on some occasions, the Trustees have not provided the documents that have been requested at all, and on other occasions they have provided only some of the documents in the categories sought.
105. In support of their application for inspection the Kairu Chan parties drew specific attention to the following aspects of outstanding requests for documents:
(1) On 29 June 2020 Excel files to which the general ledgers of the Trusts had been exported were provided to the Plaintiffs. These contained numerous entries which referred to entries "to make accounts balance ... as per Anton email". These entries are not for trivial amounts. For example, for the Keck Trust General Ledger under the account "Loan to Admarval Trust" (157) there is a credit entry of $6,948,016.32 for the date 30 June 2018 with the notation "Journal to make accounts balance to Moran Financials as at 30th June 2018 as per Anton email - Journal to make accounts balance to Moran". The request for the "Anton email(s)" dated 13 July 2020 has gone unanswered.
(2) Similarly, multiple ledger entries simply have the description "movement" - see for example the debit entry to Mariano Valmorbida's account 2140.09 on 30 June 2019 for $2,000,000 and the accompanying credit entry entitled "transfer" in the Ledger entries of the Keck Trust. The request for access to the relevant source files (MYOB or Xero) in order to determine the basis for these transactions has also gone unanswered.
106. What is apparent from the history of discovery orders and the failure to comply with them on the part of the Trustees, and also from the various requests for information and the provision of some, but not all of the information sought, is that there has been a piecemeal approach both to requests for the provision of trust documents, and to the responses by the Trustees to those requests.
107. In part the piecemeal approach is a product of failure on the part of the Trustees to comply with existing discovery orders. However, the obligation to make discovery of categories of documents identified in the 15 March 2019 list is confined to categories of documents that are relevant to the pleaded issues. The Trustees discovery obligation does not extend to the broad categories of 'trust documents' from 1 July 2013 that the Kairu Chan parties seek to inspect.
108. The provision of documents to the Kairu Chan plaintiffs in response to specific requests has given rise to further questions, and requests both for documents and for explanations sitting behind or underpinning entries in accounts and ledgers. Such documents as have been provided, have caused further questions to be asked and have led to both further amendment to the pleading and further requests for documents. The process has been both inefficient and time consuming.
109. By way of recent example, the provision of the financial accounts for the Admarval Trust for the 2019 financial year on 22 May 2020 alerted those acting for the Kairu Chan parties to the existence of the AV Children's Trust. The accounts revealed the distribution of $2.4 million or 50% of the income of the Admarval Trust in the 2019 financial year to that trust, a trust controlled by or aligned with the Valmorbida parties. That is in stark contrast to the position in the 2018 financial year when, according to the accounts, 50% of the income after expenses of the Admarval trust, $2,191,667 was distributed to AVFT of which Adjoval, the fourth plaintiff, is trustee, a trust controlled by Kairu Chan.[52]
110. Upon being made aware of the existence of the AV Children's Trust and the distribution recorded in the 2019 accounts, ABL sought copies of the AV Children's Trust Deed from LHPW.[53] LHPW said they did not act for the trust. LHPW did not identify the trustee of that trust and directed those enquiring from ABL to pursue others, in particular, Mr Rizzo for documents concerning that trust.[54]
111. The amendments to the statement of claim for which leave was initially sought by summons filed 3 June 2020 are amendments made following discovery by VCPL and by Golden Fin. The Trustees (Vinrose and Maradval) have not made discovery, but upon the Trustees providing copies of the 2019 accounts and tax returns, new issues emerged, including concerning the AV Children's Trust. As a result the proposed amended statement of claim for which the Kairu Chan parties initially sought leave was further amended and replaced with a further version of the pleading. That is the version of the pleading for which leave was granted by consent on 24 July 2020.
112. The second Ford affidavit describes the reasons for further amendments to the pleading:
The Plaintiffs seek to make the proposed amendments within PASoC2 at this time, for reasons that:
(a) with respect to paragraphs 95 to 99, it was upon receipt of the 2019 financial statements on 22 May 2020, that the Plaintiffs learnt of the purported distribution to the "AV Childrens F Trust". Despite the Plaintiff's requests for information, no further information has been provided in respect of the distribution or in respect of the AV Childrens Trust, save for an assertion that the distribution was for the benefit of the Plaintiff's children;
(b) with respect to paragraphs 100 to 118, it was upon receipt of the general ledgers provided on 29 June 2020, that the Plaintiffs were provided with the necessary further detail with respect to the payment of legal fees by Golden Fin, so as to make the claims now made within the PASoC2 with sufficient particularity;
(c) with respect to paragraphs 119 to 123, it was upon receipt of the general ledgers provided on 29 June 2020, that the Plaintiffs learned of the payments of "legal fees" by Golden Fin to Applebay Pty Ltd.
113. It is evident that the Kairu Chan parties are not content that the further amendments made pursuant to leave granted on 24 July 2020, capture all of the matters of which they consider legitimate complaint might properly be made by them concerning the administration of the three trusts. On 24 July 2020 the Court was informed by Senior Counsel that further amendments may be needed to the pleadings, depending upon what is revealed by the inspection of trust records for which the Kairu Chan parties contend.[55]
114. At the same hearing, Senior Counsel for the Trustees informed the court that his clients wanted to go back and to investigate the accounts for the trusts prepared by or on the instructions of Adrian.[56] It was this proposition that led to the identification of 1 July 2013 as an appropriate starting point for the provision of trust documents.[57]
115. Prior to 1 July 2013 and up to and including the whole of the 2015 and 2016 financial years Adrian was a director of Admarval and Admarval was trustee of the Admarval trust. In the ordinary course one might expect that the trustee under the control of Adrian would have prepared and finalised accounts of the trust for those two years. Adrian was terminally ill during this period, he died shortly after the end of the 2016 financial year. The three different accounting records of which the Kairu Chan parties complain concerning the 2015 financial year are accounting records prepared by or under the guidance of the Valmorbida the parties.
116. The evidence of Mr Hughes is that the accounting records are kept by Grace Culvenor, a bookkeeper engaged by the Trustees and by Moran, Accountants. Ms Culvenor commenced in that role in early 2017, taking over from the previous bookkeeper Kal de Silva, who was apparently engaged by Adrian on behalf of himself, and the three trusts. Mr Hughes gives evidence that Ms Culvenor was not provided with a comprehensive or complete set of accounting records of the three trusts by Mr de Silva. In particular, it is his evidence that the information provided did not include documentation that Ms Culvenor would have expected to have been retained in relation to the accounting entries and reports maintained on behalf the three trusts.
117. Mr Hughes gives evidence that hard copy documents relating to the three trusts are held in storage at Brunswick East in Victoria. It appears from his evidence that such hard copy documents as have been stored relate to at least the period from 1 July 2013. It is not clear whether the hard copy documents may include the types of documents which Mr Hughes says were not provided by Mr de Silva to Ms Culvenor.
118. The affidavit evidence of Mr Hughes, and also the submissions filed on behalf of the Trustees, deal in some detail with practical difficulties relating to the retrieval, collation and review of documents arising from the present COVID-19 pandemic, difficulties that are present as a result of restrictions on movement currently imposed in the Melbourne metropolitan area. It is unnecessary to discuss those issues in detail in these reasons. Clearly the orders to be made need to take account of those restrictions and limitations.
119. Both the Trustees and the Kairu Chan parties are in agreement that inspection of trust documents should occur. However, there is a gulf between them as to the appropriate approach to adopt and as to the content of such an order.
120. The Trustees' limited form of order goes no further than the provision of 'details of the arrangements for the plaintiffs and their lawyers and accountants to have access to the accounting records'. The draft order makes no actual provision for any form of inspection of trust documents.
121. The Kairu Chan parties seek orders for the provision of lists of documents to which objection is taken by the Trustees, but otherwise they seek orders for the provision of 'trust documents' that are not subject to objection to production. Provision is made for the inspection of all electronic and hard copy trust documents for each of the three Trusts, from 1 July 2013. The only exception from production for inspection concerns such documents as the Trustees identify in a list over which they assert a specified basis to object to inspection, for example, on the basis of legal professional privilege.
122. The draft orders on behalf of the Kairu Chan parties fail to grapple with what constitutes 'trust documents'. To adopt such a broad brush approach is unsatisfactory, and likely to be productive of future disputes. In particular, I accept the submission on behalf of the Trustees that:
"The category of trust documents has never been comprehensively defined. Trust documents have these characteristics in common: (1) they are documents in the possession of the trustees as trustees; (2) they contain information about the trust which the beneficiaries are entitled to know; (3) the beneficiaries have a proprietary interest in the documents and, accordingly, are entitled to see them. If any parts of a trust document contain information which the beneficiaries are not entitled to know, I doubt whether such parts can truly be said to be integral parts of a trust document".
123. Whilst it is necessary that what constitutes the 'trust documents' to be made available for inspection are appropriately defined, in general I propose to make orders for inspection along the lines of those for which the Kairu Chan parties contend. In arriving at that view I have taken into account a number of matters relevant to the exercise of the discretion to which I will now refer.
124. First, in determining the appropriate form of order, the degree of proximity of the Kairu Chan plaintiffs as beneficiaries to each of the three Trusts is critical. In Erceg, the court made the following observations:[59]
[59] The nature of the beneficiary's interest will also be significant. A named beneficiary or a member of a class such as the immediate family of the settlor, who can be expected to either receive dispositions from the trust or, at least, to be a strong candidate to do so, will have a far more compelling case for disclosure than, say, a charitable institution that is within the category of institutions to which a disposition could be made but has no other association with the trust.
[60] As noted earlier, the starting point is the obligation of trustees to administer the trust in accordance with the trust deed and their duty to account to beneficiaries. So the strongest case for disclosure would be a case involving a request from a close beneficiary for disclosure of the trust deed and the trust accounts, which would be the minimum needed to scrutinise the trustees' actions in order to hold them to account.
[61] The appellant relied on Foreman for the proposition that there is a presumption that a discretionary beneficiary is entitled to be provided with copies of trust documents demonstrating how the trust has been administered and managed and what has become of the trust property. He argued the presumption should be applied in the present case, something that was strongly resisted by the trustees.
[62] In the normal run of things, trustees will provide these to close beneficiaries on request or proactively, without the need for a request. If they refuse, a court will be likely to require disclosure unless, to use Potter J's formulation, there are "exceptional circumstances". This is the so-called "presumption" of disclosure, noted earlier. We see it more as an expectation that basic trust information will be disclosed to a close beneficiary who wants it. But there may be room for debate about who is a close beneficiary and the request for disclosure may go beyond such basic information. The greater the scope of the request and the remoter the interest of the beneficiary, the more room there will be for argument about the appropriateness of disclosure.
125. The evidence is plain that Adrian, prior to his death, and his family, are close beneficiaries of each of the three Trusts. Before his death Adrian controlled Admarval and the Admarval Trust of which Admarval was trustee. He was the only child of Mariano entitled as a Principal Beneficiary of the Keck trust, his siblings having been excluded as primary beneficiaries of that trust by Mariano in 2004. He was joint guardian of the Keck Trust with Mariano, and he and his father jointly controlled it. He was a director of the trustee, Vinrose. Adrian was a joint guardian of the Ferval Trust with Mariano, he was a principal beneficiary of that trust and he was a director of the trustee company, Golden Fin. During his life, very substantial sums were applied by the three trusts for Adrian's benefit.
126. Apart from the interests of the Kairu Chan parties as beneficiaries of each of the three trusts, Kairu Chan is a shareholder in each of Vinrose, Golden Fin and Admarval, the current and former trustee companies and, before his death, Adrian was a director of each of those companies.
127. In their concluding remarks in Schmidt,[60] the House of Lords made the following observations, observations which resonate with the facts in the present case:
(1) It seems to be common ground that during Mr Schmidt's lifetime substantial distributions were made for his benefit, all or most by allocation of funds to the two companies (Gingernut and Petragonis) which were regarded as being (in some sense) Mr Schmidt's. The appellant as Mr Schmidt's personal representative does not accept that these funds have been fully accounted for. His contention is that in respect of allocated funds Mr Schmidt ceased to be a mere discretionary object, and became absolute owner. On the face of it the appellant (as personal representative) seems to have a powerful case for the fullest disclosure in respect of these funds.
(2) The appellant as personal representative would also, on the face of it, have a strong claim to disclosure of documents or information relevant to the issue whether, but for breaches of fiduciary duty (such as for instance overcharging) more funds would have been available for distribution to Mr Schmidt, and would or might have been allocated to him in practice... .
(3) As regards the appellant's personal claims under the Angora Trust since his father's death, his status as beneficiary of any sort depends on the issue of construction discussed ... above.
(4) As regards the Everest Trust, the appellant is a possible object of the very wide power in clause 3.3 (see ... above), but an object who may be regarded (.....) as having exceptionally strong claims to be considered.
128. The closer the relationship between the beneficiary and the trust, the more willing the court will be to require a greater level of disclosure demonstrating how the trust has been administered and managed, and what has become of the trust property.
129. The second matter material to the exercise of the discretion in this case, is another of the factors identified in Erceg:
The case for disclosure will be compelling if meaningful monitoring of the trustee's compliance with the trust deed in the administration of the trust could not otherwise occur.[61]
130. A key recurring complaint on the part of the Kairu Chan parties is that whilst in response to specific requests, some accounts and, for some periods, general ledgers and list entries have been provided, the document that have been provided are not such as would enable meaningful monitoring of the Trustees' compliance with the trust deed or the administration of the Trusts.
131. There are multiple disputes both on the pleadings and referred to in the affidavit evidence concerning accounting entries and adjustments where it might reasonably be expected that there are source documents, working papers, emailed instructions (such as the 'emails from Anton') and file notes of meetings or telephone conversations which are needed to enable monitoring of the administration of the trusts to be 'meaningful'. Aspects of the disputes between the parties that call out for the provision of trust documents so as to enable such review and monitoring include:
(a) line items such as 'historical balancing' of $14,088,982.75 in the Admarval general ledger.[62]
(b) multiple ledger entries simply have the description 'movement'; for example the debit entry to Mariano's account 2140.09 on 30 June 2019 for $2,000,000 and the accompanying credit entry entitled 'transfer' in the Ledger entries of the Keck Trust.[63]
(c) the conversion of Adrian's approximately $9m credit balance in the Admarval Trust as at 30 June 2015. First, a debit balance of a little over $417,000 (in accounts produced by Morans, then accountants for Admarval), then a debit balance of $387,377.42 (accounts produced by the Defendants) and finally, a credit balance of $301,801.40 (accounts produced by David Freeman, lawyer and adviser to Mariano);[64]
(d) numerous entries which refer to entries 'to make accounts balance ... as per Anton email'. For example, for the Keck Trust General Ledger under the account 'Loan to Admarval Trust' there is a credit entry of $6,948,016.32 for 30 June 2018 with the notation 'Journal to make accounts balance to Moran Financials as at 30th June 2018 as per Anton email - Journal to make accounts balance to Moran';[65]
(e) payments apparently made in the Trusts to meet legal expenses of persons other than the Trustee.
132. The third factor relevant to the discretion is that both parties to the dispute wish to inspect the trust documents, albeit with different objectives in mind. The Trustees wish to investigate transactions that took place in relation to the trusts during the period that Adrian was in control of the trustee companies, whether alone, or in conjunction with Mariano. The Kairu Chan parties are primarily interested in what happened in the lead up to and after Adrian's death.
133. The Trustees submit that all beneficiaries should be given access to the same documents. That is clearly desirable in this case.
134. The production of trust documents for inspection by or on behalf of all beneficiaries will enable appropriate scrutiny of the administration of the three trusts from 2013, covering periods both when Adrian and/or the Valmorbida parties were in control of those transactions. Scrutiny will be such, if meaningful, so as to enable those affected to evaluate whether or not there have been breaches of the obligations identified at para 87 above, including the statutory requirement in s 286 of the Corporations Act 2001 (Cth), that each trustee company:
keep written financial records that:
(a) correctly record and explain its transactions and financial position and performance; and
(b) would enable true and fair financial statements to be prepared and audited.
135. Fourth, the context in which the inspection application is made is important in framing the scope and content of an order.
136. The context includes that this is not a case where there is one trustee who has continually had the management and control of the trust and its property over the period in respect of which documents are sought. Here, the Trustees wish to access and review documents from 1983 to prior to Adrian's death, and the Kairu Chan parties wish to have access to review relevant documents concerning the administration of the trusts in the period leading up to Adrian's death and since his death when control of the trusts in a practical sense was passed to the Valmorbida parties.
137. The context includes that discovery orders have been made and that discovery is available to the parties in both the Trustee Removal Proceeding and the Golden Fin Proceeding.
138. The fact that discovery is required to take place in those proceedings is not a reason to refrain from ordering inspection of trust documents. The scope of trust documents which the Kairu Chan parties have a legitimate interest in inspecting relate to the administration of the trusts. The trust documents that are sought for inspection from 1 July 2013 are all trust documents for the period. They are not confined to trust documents relevant to issues raised on the pleadings. If as a result of inspection of the trust documents, the Kairu Chan parties learn of what they consider to be further examples or instances of breaches of duty, it can be anticipated they will seek to amend the present pleading. The same may be said of the Trustees who also wish to inspect.
139. It is obviously desirable that all disputes between the parties are heard and determined at the one time. An order for inspection will facilitate such an outcome.
140. The relationship between inspection orders and discovery has been the subject of consideration in a number of recent decisions in New Zealand.
141. In Re Ashley Trust; Glasgow Harley Trustee Ltd v McLaughlin,[66] trustees applied for orders suppressing certain documents.[67] The substantive relief sought concerned Beddoe directions,[68] approving the trustees defending related proceedings where they were sued by the beneficiaries and indemnifying the trustees from trust assets for costs incurred in those proceedings. The Court noted that the documents in question might later be the subject of discovery, but for the time being 'questions of relevance, proportionality and so forth may be put to one side'.[69] Applying Erceg principles,[70] the Court ordered suppression of some of the documents (including on bases they were not trust documents, and confidentiality or litigation privilege applied), but held that others should not be withheld. Although the trustees sought suppression orders for the duration of the proceeding, that was refused on the basis that the documents may later be subject to discovery where different principles were applicable.[71]
142. Ash v Singh[72] concerned, amongst other things, an application for further discovery. The statement of claim included a cause of action for inspection of trust documents pursuant to the principles in Erceg.[73] The application was dealt with applying the principles applicable to discovery. The Court stated:
I am not deciding the substantive merits of the plaintiff's fourth cause of action. I am dealing with something else: what discovery should be ordered for all the plaintiff's causes of action. This decision on procedural discovery is governed by questions of relevance, privilege and proportionality.[74]
143. McCallum v McCallum[75] was another case involving an application for discovery. The decision identified that in some circumstances the obligation to provide discovery may be broader than rights of inspection:
While under substantive disclosure principles in Erceg disclosure of trustees' reasons for decisions may not be required, litigation or procedural discovery may require documents in the possession or control of trustees to be disclosed even if they are not trust documents but are relevant to an issue in the proceeding.[76]
144. Green Meadows Holding APS v Sargison[77] was a strike out application of the plaintiff's statement of claim. All but one cause of action was struck out. The surviving cause of action was procedurally defective because it was not properly particularised. The plaintiffs were given an opportunity to replead. The Court noted that pleading would be difficult as the plaintiffs could not have pre-action discovery, and could not plead a speculative case. However, Bell J referred to Erceg and noted that the plaintiffs might be assisted by inspection of documents under the principles in Erceg:
But there is another matter that may assist the plaintiffs. They may be able to obtain disclosure of the defendants' records independently of procedural discovery directions. The plaintiffs may require disclosure of records even in the absence of the current proceeding. That arises from the court's jurisdiction to supervise the dissolution of the building society. The defendants have acknowledged the court's supervisory jurisdiction by applying for directions under s 66 of the Trustee Act. Their role as 'trustees' under s 115(2)(e) of the Building Society Act requires that they be accountable to shareholders for their conduct of the dissolution. ... In Erceg v Erceg the Supreme Court confirmed the court's power to order trustees to disclose trust records to beneficiaries to ensure that a trustee administered a trust according to the trust deed and accounted to beneficiaries.[78]
145. What the New Zealand cases demonstrate is that whilst applications for discovery and inspection of trust documents are treated as distinct applications, with different principles applicable to each, there will often be an overlap. When considering that overlap, while the principles on a discovery application are different, Erceg principles have nonetheless been treated as 'relevant' when it comes to discovery applications.[79] The same is the position in reverse. In some instances the discovery obligation will be broader in terms of what is required to be produced, in others, it will be narrower. But in no cases will one be irrelevant to orders to be made in respect of the other.[80] In the present case the time period to which the inspection orders relate extends beyond dates relevant on the existing pleadings. As all trust documents are sought, the breadth of the documents sought to be inspected also extends beyond issues defined by the pleadings. However, where there are existing issues on the pleadings, such as concerning the capacity of Mariano, discovery can be expected to require the production of documents falling outside those comprising 'trust documents', even on the broadest view of what constitutes 'trust documents'. It is important that there be complimentary orders for inspection and discovery so as to avoid unnecessary duplication of costs that would otherwise be incurred.
146. I do not accept the submission on behalf of the Trustees that because the Kairu Chan parties will shortly be given documents 'by way of further discovery in the proceeding', that such discovery orders are a suitable substitute for inspection orders.
147. Fifth, the scope and quantity of the documents sought to be inspected is a relevant factor in formulating an inspection order.[81] It is relevant to consider practical difficulties in providing the information and that it may be difficult or expensive to generate or collate that information.[82]
148. Those issues do not loom large in the present case. The bulk of the trust records to which an inspection order might go are likely to be available electronically, except for those hard copy documents which have been identified in the Hughes affidavit as being stored at one specific location. That is, with the exception of trust documents held by third parties such as the accountants, Morans, the trusts bookkeeper, Grace Culvenor, and by the adviser to the parties, Mr Freeman. Morans has indicated that hard copy records in the nature of source documents such as invoices and receipts, and financial year end reports, trial balances, statements and ledgers are stored at 650 Nicholson St, Carlton. Ms Culvenor has indicated that records in the nature of bank statements, invoices and receipts are kept in hard copy at 12 Barkly St, Brunswick East. On 21 February 2019, Freeman emailed minutes of trust resolutions for 2017 and 2018 to Morans accountants, and the plaintiffs' submit that this indicates that at least as at that date he had access to trust records.[83] Given Mr Freeman's role, for the avoidance of doubt, it is important that an order for inspection expressly refer to documents in his possession, power or control that are 'trust documents'.
149. The evidence of Mr Hughes that there appear to be documents 'missing', as per the advice of Ms Culverton; and the references to emails from 'Anton' as providing the basis for accounting entries makes it all the more important that the obligation to produce for inspection extends to third party servants and agents of the trustee companies - no matter which 'side' of the family may have been in control of the trust at any particular point in time. Also that working papers, file notes, and records of attendances together with emails of or to such persons are made available for inspection.
150. Sixth, in Erceg the Court noted that disclosure might embitter family feelings, equally non-disclosure might have a similar effect.[84] I agree this is a relevant consideration when framing inspection orders. It is clear that there is already a significant level of distrust in this case between the family members - in that setting, more rather than less disclosure is likely to be of assistance. Refusal, or an order that is too narrowly expressed is likely to lead to more embitterment.
151. There is clearly a will on the part of all parties to continue to seek to resolve these unfortunate disputes with the assistance of a mediator. In circumstances where there is clear mistrust and a history of documents being provided in response to specific requests and 'on the drip' there is a need for all relevant documents to be available to all parties as soon as practicable and certainly prior to the resumed mediation.
152. There is no suggestion in this case that in seeking inspection the Kairu Chan parties are acting out of some form of improper motive.[85] Similarly the submissions do not raise particular issues of personal or commercial confidentiality which the Court is asked to take into consideration when framing the relevant orders.
153. Seventh, it is also clear that, given Mariano's age and his central role in the events concerning the trusts and their administration, a trial of all issues that any party may wish to raise concerning the trusts should take place as soon as can be achieved. It is also important that when that trial occurs, all potential issues of relevance to the trusts and their administration are before the Court.
154. The proposed order put forward on behalf of the Trustees recognises the beneficiaries entitlement to accounting records, but does not give timely and meaningful effect to that entitlement. It is not timely because if made, it is an order that achieves nothing. If such an order were made, it would be simply one step down the path. The Trustees submit:
The Kairu Chan parties will be at liberty to seek further documents as part of the further discovery in the proceedings or in applications for access to trust documents, if so advised following their inspection of the accounting records.
155. That is unsatisfactory. The time has come now to deal with the application by the Kairu Chan parties to inspect trust documents. I accept the submission on behalf of the Kairu Chan parties that, having earlier conceded some entitlement for inspection on the part of the Trustees, including by promising that a list of documents that the plaintiffs would be entitled to inspect was being prepared, the Trustees have now stepped back from that earlier and more helpful and realistic position.
156. It is both inappropriate to defer the decision on what should be inspected and orders for such inspection. That is particularly so given Mariano's age, the nature of the dispute which is between close family members, the attempts that have previously been undertaken to seek to resolve the dispute, and the need to have all relevant documents available to all parties both prior to the mediation to be held after 23 October 2020 and before the trial of the proceeding to take place in early 2021, if the matter does not settle.
157. The proposed order on behalf of the Trustees also does very little to ensure that meaningful scrutiny of the administration of the trust is able to be undertaken by or on behalf of the beneficiaries. So far as the draft order refers to trust records, it specifies only 'the accounting records' of the three trusts. What is meant by 'the accounting records' is not defined, although the Trustees submit that such accounting records 'will include the financial statements and ledgers and the primary vouchers and receipts'.
158. Access to those limited classes of documents will not enable meaningful monitoring of the activities of the three trusts. By way of example, it will not capture the emails from 'Anton' without access to which the rationale underlying very substantial accounting 'adjustments' will most likely remain completely undisclosed. Whilst on discovery such emails should be produced, discovery of any such emails will be confined to emails concerning 'known' adjustments only. That is, based on what has become known to the Kairu Chan parties as a result of the piecemeal process of providing categories of documents in response to specific requests earlier described. Discovery based on existing pleadings is no substitute in the present case for an appropriate regime for inspection.
159. I accept the submission on behalf of the Trustees that steps should be taken to avoid multiple and overlapping document review and production exercises. Orders can be framed in a manner that provides for inspection of specified categories of trust records on the part of the Kairu Chan parties and by other beneficiaries of the trusts, which avoid unnecessary duplication with discovery obligations in the two proceedings. Whilst the nature of the two exercises are quite different, orders can be made that are consistent with the obligations upon the parties and the Court under the Civil Procedure Act 2010 (Vic).
160. I do not accept the proposition that a form of order that establishes a framework for resolution of 'satellite disputes' concerning legal professional privilege or documents otherwise identified but not produced imposes an 'inefficient and costly' burden upon the Court and its resources. Rather, it sets up a mechanism that it is to be hoped can deal efficiently and in a cost-effective manner with such disputes should they arise.
161. I propose to make orders for inspection as follows.
162. In this order, the following definitions apply:
"the period" means the period commencing 1 July 2013 to date;
"the trusts" means the Admarval Discretionary Trust, the Keck Trust and the Ferval Trust or any of them;
"the Trustee" means the trustee of the trusts or any one of them from time to time including the second to fourth defendants;
"the trust documents" means all written records that record and/or explain each transaction of the trusts, or of the Trustee of the trusts as the case may be and of the financial position and performance of the trusts as would enable true and fair financial statements of the trusts to be prepared and audited and for the purposes of this order includes:
(A) documents which evidence or consist of an explanation as to:
(a) how any amount in the accounts of the trusts, or any amount which goes to make up the amounts comprised in such accounts was ascertained;
(b) the basis and purpose of each journal entry (including those relating to legal fees) and transaction;
including client instructions or explanations, working papers and calculations, file notes, emails (including emails such as the 'emails from Anton') and records of communications related to or concerning each such amount and entry.
(B) meeting minutes for each of the trusts as to decisions made about distributions;
(C) accounting records, including financial statements and ledgers and primary vouchers and receipts;
(D) documents recording or evidencing professional advice given to or taken by the Trustees of trusts or any one of them concerning the administration of the trust;
(E) such documents or copies of such documents as described above held or in the possession or power of the third parties or any of them as defined below;
"the excluded documents" means;
(A) any settlor's memorandum of wishes, unless such memorandum of wishes has previously been discovered in this proceeding;
(B) any document of the trustee to which legal professional privilege or without prejudice privilege attaches being the privilege of one or more of the Trustees of the trusts;
(C) documents recording or evidencing the reasons of any one or more of the Trustees for exercising a discretionary power, other than the minutes of meetings of Trustees;
(D) documents recording or evidencing information provided to the Trustees or any one of them, in confidence by a beneficiary where such document contains confidential information.
"the third parties" means the servants and agents of the Trustees of the trusts or any one of them, from time to time, and includes:
(A) Moran accountants;
(B) Mr Kal de Silva; and
(C) Mr Freeman.
1. By no later than 9 October 2020 the Trustees shall provide to the plaintiffs' solicitors, Arnold Bloch Liebler, for inspection by or on behalf of the plaintiffs, copies of the trust documents for the period other than the excluded documents:
a. Such of the trust documents as are available in electronic form shall be provided to Arnold Bloch Liebler in text searchable electronic form, indexed by folder so as to conveniently identify the subject matter, type of document, and date period of the relevant documents.
b. Such of the trust documents as are available only in hard copy shall be provided by the Trustees making such documents available for inspection by agreement with the legal practitioners and/or accountants designated by the plaintiffs as the persons who shall undertake inspection of such documents: and
1. in default of agreement such inspection, with arrangements to facilitate the taking of copies, shall take place at the offices of Lawson Hughes Peter Walsh; and
2. for the purposes of inspection of the hard copy documents, it shall be sufficient for the documents made available for inspection to be identified in the manner indicated in para 1(a) of this Order.
2. By no later than 9 October 2020 the Trustees shall provide a list of documents or categories of documents which comprise either:
(a) excluded documents; or
(b) such other documents as the Trustees contend ought not be made available for inspection pursuant to this order;
(c) such list to include a brief description of the reason the document in question is an excluded document or should not otherwise be required to be produced for inspection pursuant to this order.
3. By no later than 16 October 2020 the plaintiffs shall provide a schedule listing those documents, if any, referred to in paragraph 2 which they contend are not excluded documents or should otherwise be made available for inspection.
4. Any dispute as to inspection of excluded documents or otherwise as provided in paragraphs 2 and 3 of this order shall be referred for determination to an Associate Justice.
5. To the extent documents are produced for inspection pursuant to paragraph 1 of this order it shall not be necessary for the party producing those documents to also make discovery of those documents pursuant to the orders made on 24 July 2020.
6. The costs of complying with orders 1 and 2 shall be borne by the Trustees in their capacities as trustees.
7. Liberty is reserved to the Trustees to apply for an extension of the time fixed by these orders by no later than 2 October 2020 should it be the case that compliance with these orders, or part of them, is not capable of being achieved due to restrictions upon movement imposed due to the COVID-19 pandemic.
8. The Trustees pay the plaintiffs' costs of and incidental to this application on a standard basis.
163. As will be apparent, in seeking to define what constitutes 'trust documents' I have drawn upon s 286 of the Corporations Act 2001 (Cth). I have also drawn upon those categories of documents in the form of accounting records which the Trustees agrees should be made available to the beneficiaries and upon those categories of documents identified by the Kairu Chan parties in their reply submissions and in the footnote to exhibit SMF 37.
164. In defining the 'excluded documents' I have had regard to the description of documents excluded by Hargrave J in Deutsch.[86] In addition I have expressly excluded documents to which legal professional privilege or without prejudice privilege applies.
165. In fixing the time for the production of both electronic and hard copy documents I have taken into consideration my understanding of the current COVID-19 restrictions both in place and expected to be in place for the next month. It may be that as a result of those restrictions despite the best efforts of the Trustees and those advising them, the timeframe for compliance with this order is not able to be achieved. I have deliberately distinguished between electronic documents and hard copy documents for that reason.
166. I would expect that electronic documents, including documents held by the third parties will be able to be accessed remotely. However, I accept that there may be difficulties in the timely compliance with orders for the production of hard copy documents which on the evidence need to be retrieved from storage in East Brunswick. In the same way, the Trustees may be delayed in identifying documents in the excluded document category where such classes of documents form part of hard copy documents in storage. Liberty to apply is expressly reserved should such difficulties arise. However, if an application is to be made to extend time for compliance it should be made before 2 October 2020.
167. I have ordered that Trustees should bear the costs of production of the documents for inspection. In determining it is appropriate that the Trustee should bear the cost of producing the documents I have borne in mind that both parties to the dispute consider that access should be given to all documents produced to all beneficiaries. I have not made a specific order to that effect because it has not been sought by any of the parties, including the Trustees. However, that should not stop the Trustees providing copies of the documents the subject of this order to any other beneficiary who may request to see such documents.
168. I have included a timetable for the process for dispute resolution where there is a contest in relation to excluded documents. I have provided for any such dispute to be determined by an Associate Justice, a judicial officer who will not be involved in the trial of the proceeding. That is to facilitate inspection of documents if needed by the judicial officer in order to determine any such disputes.
169. As the Kairu Chan parties have been successful in their application for inspection of documents I will order that the Trustees pay the plaintiffs costs of and incidental to this application on a standard basis.
170. I regret that it has taken longer than I had anticipated to provide my decision in relation to the trust records. The parties have liberty to apply should it be thought necessary to revisit the timetabling orders made on 24 July 2020 as a consequence of the delay.
KAIRU (ERICA) CHAN (in her capacity as executor of the
estate of Adrian Valmorbida deceased) Second Plaintiff
[2] Third affidavit of Susanna Ford affirmed 31 July 2020 ('third Ford affidavit').
[3] Third Ford affidavit, exhibit SMF-38.
[4] Second affidavit of Susanna Ford affirmed 17 July 2020, [37] ('second Ford affidavit').
[7] [2003] UKPC 26; [2003] 2 AC 709 ('Schmidt').
[9] [2016] VSC 263; (2016) 52 VR 108 ('Deutsch').
[10] [1920] AC 581, 626-7 (emphasis added), cited in In re Londonderry's Settlement [1965] Ch 918, 932-3.
[11] Dura (Australia) Constructions Pty Ltd v SC Land Richmond Pty Ltd [2007] VSC 272, [10] where Dodds-Streeton J referred to the proprietary approach and stated: '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'. See also Mandie v Memart Nominees Pty Ltd [2014] VSC 290; [2014] VSC 290; (2014) 42 VR 325; Guest v Guest [2015] VSC 761, [60]-[71]; and Kestenberg v Kestenberg [2020] VSC 84, [7].
[12] See also eg AIT Investment Group Pty Ltd v Markham Property Fund No 2 Pty Ltd [2015] NSWSC 216, [74], [90] (Bergin CJ in Eq); Wright v Stevens [2018] NSWSC 548, [286], [298].
[15] Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89, 151-2, [135].
[18] Amended Statement of Claim [85D], [85E], [85J], [85M], [85S], [85T]; Defence of Second to Fourth Defendants to Amended Statement of Claim [85D], [85E], [85J], [85M], [85S], [85T].
[19] Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533, 535; Woodman v Kudosa Pty Ltd [2015] VSC 675, [19].
[20] Deutsch [2016] VSC 263; (2016) 52 VR 108, 122-3 [52]: 'The beneficiary is entitled to see all the trust documents because they are trust documents and because he is a beneficiary. They are in a sense his own. Action or no action, he is entitled to access to them. This has nothing to do with discovery. The right to discovery is a right to see someone else's documents. A proprietary right is a right to access to documents which are your own. ... Documents containing professional advice taken by the executors as trustees contain advice taken by trustees for their cestuis que trust, and the beneficiaries are entitled to see them because they are beneficiaries.'
[21] [2014] VSC 290; (2014) 42 VR 325, 342 [94].
, [22] [2015] NSWSC 216, [85].
[23] [2018] NSWSC 548, [286].
[25] [2017] NZSC 28; (2017) 1 NZLR 320, [85] ('Erceg').
[26] [2017] NZSC 28; (2017) 1 NZLR 320, 338-9 [56].
[27] Strauss v Wykes [1916] ArgusLawRp 11; [1916] VLR 200, 204 (Madden CJ); Re Craig (1952) 52 SR (NSW) 265, 267(Roper J).
[28] See Ford on Trusts (Electronic Edition) at [9.4210].
[29] Ford & Lee at [9.4010], citing Freeman v Fairlie [1812] EngR 490; 36 ER 12; (1817) 3 Mer 29 at 41 (Mer), 16 (ER) and Skinner v Trustees Executors & Agency Co Ltd (1902) 27 VLR 218 (FC) per Madden CJ at 227.
[30] Ibid, citing Stainton v Carron Co [1857] EngR 760; (1857) 24 Beav 346; 53 ER 391 at 361 (Beav), 396 (ER); Furness v Public Trustee [1921] 40 NZLR 898 at 901-2.
[31] Ibid, citing Glazier v Australian Men's Health [2000] NSWSC 253; Martyniuk v King [2000] VSC 319; Kain v Hutton [2002] NZCA 180.
[32] Ford & Lee at [9.6230], citing Re Cowin [1886] UKLawRpCh 138; (1886) 33 Ch D 179; O'Rourke v Darbishire [1920] AC 581 at 619-620; Hackett v Hackett [1921] NZGazLawRp 204; [1922] NZLR 242; Re Whitehouse [1982] Qd R 196.
[33] Manzi v Smith [1975] HCA 35; (1975) 132 CLR 671 at 674; Re Temples Wholesale Flower Supplies Pty Limited v Commissioner of Taxation [1991] FCA 162; (1991) 29 FCR 93 at 100-102; and Re York Street Mezzanine Pty Ltd (in liq) [2007] FCA 922; (2007) 162 FCR 358 at [26].
[34] Jacobs, [17-13] citing White v Lady Lincoln [1803] EngR 541; (1803) 8 Ves 363 at 369; [1803] EngR 541; 32 ER 395.
[35] See comments in the table annexed to the LHPW letter to ABL of 19 June 2020 at item 12, SMF-25 to Ford 2, 299.
[36] Second Ford affidavit, exhibit SMF-28 [4], [12]-[16].
[38] See, eg, second Ford affidavit, exhibit SMF-32, [10]-[15].
[39] See requests made in ABL letters dated 15 June 2020 at [5], SMF-24 to Ford 2, p 286, 26 June 2020 at [12], SMF-28 to Ford 2, p 309.
[40] Second to Fourth Defendants, 'Outline of Submissions in Response to Plaintiffs' Application for Document Access', 8 August 2020; Affidavit of Lachlan Hughes, sworn 8 August 2020.
[41] Second Ford affidavit, exhibit SMF-14.
[51] Third Ford affidavit, exhibit SMF-37.
[52] Second Ford affidavit, exhibit SMF-15, p 114.
[54] First Ford affidavit, exhibit SMF-8.
[55] Transcript of Proceedings (24 July 2020) 3.27 ('Transcript').
[61] [2017] NZSC 28; (2017) 1 NZLR 320, [56] (emphasis added).
[62] Second Ford affidavit, exhibit SMF-29 'Letter dated 29 June 2020 from LHPW to ABL with attached General Ledgers', p 10 of 16.
[63] Second Ford affidavit, exhibit SMF-20 'Letter dated 9 June 2020 from LHPW to ABL with attachments', pp 255, 257.
[64] Plaintiffs, 'Plaintiffs' Outline of Submissions in Support of Orders for Inspection', 1 August 2020, [85]-[90].
[65] Second Ford affidavit, exhibit SMF-29 'Letter dated 29 June 2020 from LHPW to ABL with attached General Ledgers', p 319.
[66] [2018] NZHC 290 ('Re Ashley Trust').
[68] Re Beddoe, Downes v Cottam [1892] UKLawRpCh 180; [1893] 1 Ch 547. See generally Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar The Diocesan Bishop of The Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66.
[69] Re Ashley Trust [2018] NZHC 290, [16].
[79] See, eg Hoeberechts v Sprott [2019] NZHC 3045, [46]-[49], [76]; Gavin v Powell [2018] NZHC 2866, [41].
[80] See, eg Redwood Group Ltd v Queenstown Gateway (5M) Ltd [2018] NZHC 3439, [112]-[117].
[81] Erceg [2017] NZSC 28; (2017) 1 NZLR 320, [56(a)].
[83] Plaintiffs', 'Outline of Submissions in Support of Orders for Inspection', 1 August 2020, [80]-[81].
[84] Erceg [2017] NZSC 28; (2017) 1 NZLR 320, [56(g)].
[86] [2016] VSC 236; (2016) 52 VR 108, 126-7 [73].
Chan
Valmorbida Custodians Pty Ltd
(2016) 52 VR 108
(2014) 42 VR 325
(2017) 259 CLR 478
(2007) 230 CLR 89
(1987) 8 NSWLR 533
(1975) 132 CLR 671
(1991) 29 FCR 93
(2007) 162 FCR 358
(2008) 237 CLR 66