Oliver Twist learnt a harsh lesson when he asked for more but, in some cases, the only way you can progress a litigation is to ask for more.

The case of Chan v Valmorbida Custodians Pty Ltd [2020] VSC 590 involves the breakdown of a family relationship to the extent that the disputes involving the various family trusts were litigated in the Victorian Supreme Court with various allegations of wrongdoing.

This case considered a beneficiaries’ application to inspect trust documents in circumstances where the relationship between the parties to the proceedings had broken down. Put simply, when a beneficiary is making allegations of wrongdoing against a trustee, can a beneficiary ask to inspect “all trust documents”?

Background

Adrian Valmobida (Adrian) who, with his father, had established a series of trusts and companies for the investment of family assets. Following his death, Adrian’s widow, Kairu Chan, inherited his shares and interests in those trusts and companies. There was a falling out between Kairu and the Valmorbida family following Adrian’s death which resulted in the commencement of various sets of legal proceedings. These proceedings related to the claims (and counter claims) in relation to various financial transactions concerning the administration of various trusts and companies.

The plaintiffs alleged that Adrian’s father, who had effective control over the trusts following Adrian’s death, had shown a “want of property fitness and capacity to execute the trusts”. The defendants in turn questioned whether the trusts had been properly administered by Adrian prior to his death due to illness.

Application for inspection of documents

The plaintiffs made an application to inspect the “trust documents” in the context of unresolved disputes between the parties, specifically with an aim of proving their allegation that the trustees had breached their duties as trustees of the relevant trusts.

The trustees proposed that the plaintiffs should only be granted access to the accounting records (but not the correlating documents) noting that the plaintiffs would be able to seek further documents through discovery.

The initial question to be resolved by the Court before determining the inspection request by the plaintiffs is whether a beneficiary has a prima facie entitlement to inspect “trust documents” (the proprietary approach) or whether such access is at the discretion of the court to make sure an order for inspection (the discretionary approach).

Delany J’s judgment provided that while the proprietary approach is to be preferred in Australia, in this case, the discretionary approach was applicable as the plaintiffs did not have a proprietary right due to the trusts being discretionary trusts.

The question which followed was whether the Court should make orders exercising its inherent jurisdiction to supervise the administration of trusts.

Consideration

Delany J determined that it was appropriate that an order for inspection and considered the following factors:

1. The proximity between beneficiary and the trust;
2. Whether the inspection would allow for the meaningful monitoring of the trustee’s compliance with the trust deed which could not occur otherwise;
3. Whether the parties agree that inspection should take place;
4. The context of the application to inspect is important to framing the scope and content of the order.
5. The scope and quantity of the documents is a consideration for the court.
6. What would be the effect of disclosure (or non-disclosure)? It may be that production will assist especially if there is no allegation that the party is seeking access for improper purposes.
7. Relevance of the documents to the issues before the court.

Even though Delany J was persuaded to made orders for inspection, he criticised the plaintiffs’ proposed orders for failing to deal with what constituted “trust documents”. His Honour expressly stated that “a broad brush approach is unsatisfactory and likely to be productive of future disputes”.

Whilst Delany J permitted a broad approach when making these orders, this case ought not be taken as a licence for parties to issue vast and wildly inappropriate requests for documents (also known as a fishing expedition). The intention of the orders permitting the inspection of the “trust documents” was for the parties to have the documents necessary to be able to resolve the disputes, especially given that the dispute is between family members.

Take aways

If television dramas have taught us anything, it is that family secrets will lead to drama, chaos, and fighting. This is somewhat accurate in this case.

In exercising the Court’s inherent jurisdiction to supervise the administration of trusts, Delany J recognised anything less than full disclosure of the material was not likely to resolve the dispute.

Going forward, we recommend that you make sure your trust records are maintained so that if there is an application for inspection by a beneficiary, you have your documents in order. This will also make it easier if there is a change of trustee or controller of the trust.

In this case, Oliver’s request for more (documents) was granted – and the defendant had to pay for the meal.