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In two recent decisions the NSW Supreme Court has taken contradictory
approaches to the question of the basis upon which access to trust documents
should be granted to beneficiaries of a strict trust. The point of departure
between the two decisions was whether the court chose to apply the Privy
Councils obiter dicta in Schmidt v Rosewood Trust Ltd1 to cases involving
strict rather than discretionary trusts. Until the matter is resolved by an
appellate court, judges presented with similar cases will need to evaluate
which is the better road to travel.
In Schmidt v Rosewood Trust Ltd the Privy Council determined that access
to trust documents was no longer a right attaching to beneficiaries with a
proprietary interest in the trust, but was instead a matter to be determined in
the courts absolute discretion. Schmidt concerned a discretionary trust and so
its findings are obiter with respect to strict trusts. However, in Avanes v
Marshall2 Gzell J applied the Privy Councils conclusions, without
acknowledging that they were obiter dicta and without justifying why it was
appropriate or necessary to recast the law in this way. In McDonald v Ellis3
Bryson AJ rejected the approach in Avanes v Marshall and chose instead to
follow the established authority of a strict beneficiary having a proprietary
right of access to trust documents, subject to certain exceptions. This line of
established authority is widely understood and difficult to fault in terms of
principle or fairness when dealing with cases involving strict trusts.
Discarding the proprietary basis of access to trust documents may make
more sense in cases involving discretionary objects. But to do so for strict
trusts simply introduces debate and uncertainty in a previously settled area of
the law and therefore runs the risk of unnecessarily increasing the litigation
costs incurred by trustees and beneficiaries.
* BA, LLB (Hons) (Syd); M Phil (International Relations) (Cantab). Senior Associate,
Freshfields Bruckhaus Deringer LLP, London. The author acknowledges the helpful
comments of Mark Leeming SC and the anonymous referee.
1 [2003] 2 AC 709; [2003] 3 All ER 76.
2 (2007) 68 NSWLR 595; [2007] NSWSC 191; BC200701448.
3 [2007] NSWSC 1068; BC200708266.
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Avanes v Marshall
This case concerned a beneficiary under a testamentary settlement seeking
access to documents in the course of disclosure which the trustees claimed
were subject to client legal privilege. The beneficiary challenged this claim to
privilege on the principal basis that the documents in question were trust
documents in which the plaintiff had a proprietary interest and relied on Re
Londonderrys Settlement27 in support of their right of access. Gzell J invited
further submissions from the parties on the impact of Schmidt v Rosewood
Trust Ltd on Re Londonderrys Settlement, having formed the view that the
former overruled some aspects of the latter.
Gzell J then undertook a review of the leading authorities in the area and
highlighted the various exceptions to the rule providing beneficiaries with
access and the different bases upon which such access was said to be granted.
Starting with Re Cowin28 Gzell J noted that the court in that case had
expressed the view that the plaintiff had a prima facie right to inspect trust
documents because the cestuis que trust were the beneficial owners of the trust
property, but noted that the court felt that this general rule did not extend to
granting access to documents concerning the reasons for the exercise of a
trustees discretion. The proprietary basis for the grant of access was again
referred to with reference to the decision in ORourke v Darbishire.29 Gzell J
moved on to note that in Re Londonderrys Settlement30 the rule that the
reasons for a trustees decision need not be disclosed meant that those
documents were not trust documents and therefore not documents in which
the beneficiary had any interest.
Gzell J then moved to look at the position in Australia and noted that the
proprietary basis for granting access to trust documents to beneficiaries had
not been followed. In Spellson v George31 Powell J had concluded that a
discretionary object had an interest in ensuring trust property was properly
managed and to have the trustee account for that management. The judgments
in Hartigan Nominees Pty Ltd v Rydge32 were then briefly surveyed with the
overriding conclusion by Gzell J that both Sheller JA and Kirby P had
criticised the notion that a beneficiarys entitlement to trust documents was
based upon a proprietary interest. The decisions of the judge at first instance
and Full Court in Rouse v IOOF Australia Trustees Ltd33 were also reviewed
and the conclusion drawn was that the mere status of a person as a beneficiary
of a trust did not give that person an unfettered right of access to the
documents in question, as confidentiality or legal professional privilege were
circumstances in which a discretion to refuse inspection might arise.34
His Honour then reviewed the Privy Councils decision in Schmidt v
Rosewood Trust Ltd with the conclusion that it had rejected the proprietary
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interest theory and that [s]ince that right was not confined to proprietary
interests, the object of a discretion or a mere power might also be entitled to
protection.35 Gzell J went on to say:
The consequence is that according to Schmidt, there is no longer a general rule that
a beneficiary has a right to inspect trust documents that is subject to exceptions,
notably concerning the reasons for the exercise of the trustees discretion and
confidentiality in third parties. In each case it is a matter for the court to exercise its
discretion by balancing competing interests. At 730, Lord Walker suggested that in
Londonderry and more recent cases, including the Australian decisions of Spellson,
Hartigan and Rouse, the courts have begun to work out in detail the way in which
the court should exercise its discretion.
After completing a limited survey of the law in Australia and England, his
Honour concluded:
In my view, the approach in Schmidt should be adopted by Australian courts. The
decision should not be regarded as abrogating the trustees duty to keep accounts and
to be ready to have them passed, nor the trustees 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.36
McDonald v Ellis
This case involved an acrimonious family dispute concerning the right of
access to trust documents of a remainderman under a will with a successive
35 Ibid, at [10].
36 Ibid, at [15].
37 P McAlister, Trust documents a redundant concept? (2007) 18(8) Aust Superannuation
Law Bulletin 103.
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The defendant argued that the way in which the estates affairs were conducted
and the net annual income derived are not matters in which a remainderman
has any interest. It was further argued that the remainderman had no interest
in the trust under which the trustees paid net annual income from the flats to
the life tenant; rather, the remainderman belonged to a different trust.
However, Bryson AJ rejected the argument concerning the existence of
separate trusts on the basis that it was not a correct interpretation of the
dispositions in the will and concluded that:
the will creates one trust of the block of flats with successive interests, and the
remaindermen including the plaintiff now have present interests in the block of flats,
vested in interest although not in possession. The remaindermen have at the present
time an economic interest in the state of repair of the block of flats. Whether it is in
or out of repair, whether some need for renovation at a future time is coming into
being and whether there are any reserves or provisions, are factors affecting the
money value of rights which the remaindermen now own.40
Bryson AJ went on to conclude that the trust was not discretionary and this
therefore removed any arguments about the protection from disclosure of the
discretionary decisions of trustees. He went on to say [d]ecisions of trustees
exercising choices in the performance of management duties, such as a
decisions [sic] whether or not to carry out some repair or other, or whether or
not to make a provision for a class of repairs in the future, are not the
discretions to which that body of case law relates.41
His Honour moved on to consider the law concerning a beneficiarys right
of access to trust documents and made his views quite clear at the start of his
analysis:
Until recently judicial authority established in a clear way that a beneficiary with a
vested interest in trust property, even though that interest was not yet vested in
possession, had a right to information about the estate property, including a right to
see estate accounts and the right to inspect the property. This apparently clear
position was disturbed by observations in the judgment of the Privy Council
delivered by Lord Walker of Gestingthorpe in Schmidt v Rosewood Trust Ltd [2003]
2 AC 709 at 7345.42
His Honour went on to refer to the clarity of the position existing prior to
Schmidt v Rosewood Trust Ltd and, unsurprisingly, ultimately concluded that
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the starting point, at which the beneficiary is entitled to see trust documents
and have information about trust property, and that entitlement has a
proprietary basis, is not open to question in New South Wales. Bryson AJ
readily identifies the obiter nature of the Privy Councils comments with
respect to strict trusts and robustly points out:
When considering the case law it is important to bear in mind something I have
already alluded to, that the plaintiff in the present case has a vested interest in the
trust property and is not in the position of the object of a discretionary trust who may
or may not, according to some future decision or contingency, come to have an
interest. This is a basal consideration because the claim of a person with a vested
interest is related to property rights and is a claim to information about the persons
own property . . . A claim by the object of a discretionary trust has a less clear and
compelling basis. If their Lordships conclusions were followed, it would be
necessary to depart from the state of opinion which I regard as clearly established
in New South Wales and to do so for reasons which do not touch on the case of a
beneficiary with a vested interest making a claim for documents the characterisation
of which as trust documents cannot be doubted.43
Similar statements about the obiter nature of the Privy Councils advice appear
elsewhere in the judgment.44 However, Bryson AJ does consider whether,
even though not strictly binding on the NSW courts, the obiter dictum should
be followed because it is persuasive. His Honour concludes that the Privy
Council did not identify any error in previous authority or point out that the
existing law was significantly unsatisfactory, nor did it base its reset of the
law on any earlier judicial decision, academic writings or compelling public
policy considerations. Rather the only matter indicated was an opinion that
the rule enounced was a better rule45 without any significant reasoning for
why that was so. Bryson AJ objected to the Privy Councils approach and
stated:
In my opinion it is not a better rule because it introduces discretion and promotes
resistance and debate in substitution for a rule which is relatively concrete. The
tendency will be that only the determined and litigious beneficiary will find out
about his own affairs. Where there is a judicial discretion, there is room for litigious
debate about the exercise of the discretion; there is no certainty on so elementary a
matter as whether or not a beneficial owner is entitled to information about property
in which the beneficial owner has an equitable interest . . . Treating the entitlement
to information as an aspect of the Courts discretionary exercise of its supervising
power over trusts is a departure from the relatively concrete concept of equitable
interests in trust property which has been adopted for some centuries.46
In his judgment Bryson AJ surveys the case law in the area and considers the
same authorities as those cited in Avanes v Marshall as well as the cases of In
re Tillott, Lee v Wilson,47 In re Dartnall, Sawyer v Goddard48 and Randall v
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46
47
48
Ibid, at [35].
Ibid, at [48] and [50].
Ibid, at [51].
Ibid, at [51].
[1892] 1 Ch 86.
[1895] 1 Ch 474.
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Lubrano.49 In surveying these cases Bryson AJ points time and again to the
fact that the case law illustrates beneficiaries with vested interests and
discretionary objects approaching the court for assistance in enforcing the
personal obligation of the trustee to account.
Particular attention is paid to Hartigan Nominees Pty Ltd v Rydge as
Bryson AJ ultimately concludes that judges at first instance in New South
Wales should treat its majority judgments as authoritative.50 Bryson AJ points
out that the majority judges in that case (Mahoney and Sheller JJA) did not
simply apply In re Londonderrys Settlement. Rather, Mahoney JA did not
unqualifiedly endorse the extension of the right to all persons who are only
possible beneficiaries under a discretionary trust or are one of a large number
of possible beneficiaries . . ., and discussed the difficulties of the limits of trust
documents in this context.51 His Honour then concludes that the starting point
for ascertaining whether a beneficiary is entitled to see trust documents is
whether a proprietary interest exists52 and notes that in the case under
consideration it is not necessary to consider the position of discretionary
objects as the question does not arise. However, having said that, Bryson AJ
does permit some musings on the position of discretionary objects. He
criticises the Privy Councils reliance on Kirby Ps dissenting judgment in
Hartigan Nominees on the basis that Kirby Ps decision did not examine or
refer to judicial decisions but relied instead on a view expressed in a legal text
that the proprietary basis for permitting access to trust documents gives rise
to unnecessary and undesirable consequences.53 Bryson AJ concluded:
[t]his was, I must respectfully say, a slight basis indeed for discarding an established
right of beneficiaries with vested interests to inspection of documents of such
primary importance as the accounts of the trustees. A decision that all access to trust
documents should be in the discretion of the court is a drastic solution to whatever
problems might be perceived in supposing a proprietary basis for discretionary
interests, and whatever problems may be perceived in delimiting which documents
should be treated as trust documents and in protecting from access documents access
to which involves some conflicting principle.54
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Potter J went on to say that the circumstances which might exclude a person
named or included by definition as a discretionary beneficiary from access to
documents would be limited, because to decline disclosure of accounts and
information would be in direct conflict with the trustees fundamental
obligation to be accountable to the beneficiaries.65 However, Potter J also
noted that a beneficiarys entitlement to disclosure must be measured against
the principle that the trustees autonomy in the exercise of their discretion
must be ensured therefore ensuring that trustees are not obliged to disclose
their reasons for the exercise of a discretionary power.66
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61
62
63
64
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66
See In the Matter of the Internine and the Azali Trusts 2004 JLR 325 at 3334.
In the Matter of the Bastiaan Broere Trust and the Cornelis Broere Trust 2004 JLR Note 2.
[2004] 1 NZLR 841.
Ibid, at [85] and [88].
Ibid, at [85].
Ibid, at [88].
Ibid, at [89] following Re Londonderrys Settlement.
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Conclusion
The present state of confusion concerning the circumstances and the basis
upon which a beneficiary of a strict trust can access trust documents is highly
unsatisfactory. Trustees are left in doubt as to when they should agree to meet
requests for documents and in the circumstances it is hard to see how trustees
can be expected to fulfil their duty to make a full rather than a reluctant
response71 when information is requested of them. Unfortunately, neither of
the two decisions has yet been appealed and so uncertainty will prevail until
the matter is resolved in an appellate court.72 In the interim it would appear the
reasoning in McDonald v Ellis is least likely to cause damage to equitable
precedent in New South Wales while at the same time providing trustees and
beneficiaries of fixed trusts with greater certainty as to their rights and
obligations.
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