Silkman, Dorise Enid v Shakespeare Haney Securities Limited (ACN 087 435 783) in its capacity as responsible entity of the Shakespeare Haney Premium Income Fund (ARSN 106 223 483) [2011] NSWSC 148 (11 March 2011)

Last Updated: 14 April 2011

Supreme Court New South Wales

Case Title:	Silkman, Dorise Enid v Shakespeare Haney Securities Limited (ACN 087 435 783) in its capacity as responsible entity of the Shakespeare Haney Premium Income Fund (ARSN 106 223 483)
Medium Neutral Citation:	[2011] NSWSC 148
Hearing Date(s):	14 February 2011
Decision Date:	11 March 2011
Jurisdiction:
Before:	Hammerschlag J
Decision:	Summons dismissed with costs
Catchwords:	EQUITY - trusts and trustees - access to trust documents by beneficiary
Legislation Cited:	Corporations Act 2001 (Cth) Uniform Civil Procedure Rules 2005 (NSW)
Cases Cited:	Re Londonderry's Settlement; Peat v Walsh [1965] Ch 918 McDonald v Ellis [2007] NSWSC 1068; (2007) 72 NSWLR 605 Re Simersall; Blackwell v Bray [1992] FCA 221; (1992) 35 FCR 584 Schmidt v Rosewood Trust [2003] UKPC 26; [2003] 2 AC 709 Avanes v Marshall [2007] NSWSC 191; (2007) 68 NSWLR 595 Gray v BNY Trust Co of Australia [2009] NSWSC 789 Hartigan Nominees v Rydge (1992) 29 NSWLR 405. Rouse v IOOF Australia Trustees Ltd [1999] SASC 181; (1999) 73 SASR 484 Hospital Products Ltd v United States Surgical Corp [1984] HCA 64; (1984) 156 CLR 41 Kelly v C A & L Bell Commodities Corp (1989) 18 NSWLR 248 Re Beloved Wilke's Charity [1851] EngR 375; 42 ER 330
Texts Cited:
Category:	Principal judgment
Parties:	Dorise Enid Silkman - Plaintiff Shakespeare Haney Securities Limited (ACN 087 435 783) in its capacity as responsible entity of the Shakespeare Haney Premium Income Fund (ARSN 106 223 483)
Representation
- Counsel:	Counsel: A.S. Martin SC with G.M. Drew - Plaintiff D. Kelly SC with D. Piggott - Defendant
- Solicitors:	Solicitors: HWL Ebsworth Lawyers - Plaintiff McCullough Robertson Lawyers - Defendant
File number(s):	2010/377705
Publication Restriction:

Judgment

INTRODUCTION

1. By Deed Poll made on 1 September 2003 ("the Constitution"), there was established the Shakespeare Haney Premium Income Fund ("the Scheme"). The Scheme is a registered managed investment scheme within the meaning of s 9 of the Corporations Act 2001 (Cth) ("the Act") being registered under the provisions of Ch 5C of the Act. The defendant is the responsible entity of the Scheme. Under the Constitution, the defendant is appointed Manager of the Scheme.
   
2. The Constitution records that from time to time the Manager may invite persons to make Application to invest in the Scheme with intent that each Member (meaning a person whose application is accepted and who is registered as a member of the Scheme) will be bound by it.
   
3. Under cl 2.2 of the Constitution, the Manager holds all Assets of the Scheme on trust for Members of the Scheme, subject to the provisions of the Constitution and the Act.
   
4. The defendant initially invited members of the public to invest in the Scheme by Product Disclosure Statement dated 1 October 2003. The defendant subsequently raised further funds by public offer. It has invested the funds in mortgage investments, that is by making interest bearing loans to borrowers secured by first registered mortgage over real property. Under cl 7.2 of the Constitution, subject to the terms of the Constitution, the defendant has complete and unfettered discretion to invest in Authorised Investments.
   
5. The plaintiff is a Member of the Scheme. On or about 15 March 2004 she invested $50 000 in it. She withdrew $25 000 on 5 March 2008. The balance of $25 000 remains invested.
   
6. Thus the plaintiff is a beneficiary of a trust (the Scheme) and the defendant is her trustee.
   
7. For some four years until January 2009, the defendant operated the Scheme as a liquid one, that is, on the basis that Members could withdraw their investments at will. However by late January 2009 the financial position of the Scheme had deteriorated to the point where it could no longer operate on that basis.
   
8. On 28 January 2009 the defendant wrote to the plaintiff informing her that withdrawals had been suspended.
   
9. On 15 March 2010 the defendant wrote to the plaintiff about difficulties being experienced as a flow on from the global financial crisis. The letter included the following:
   

Liquidity in the mortgage trust sector is virtually non-existent. In August, 2009 the ASIC advised that there were 76 "frozen" funds holding approximately $25 billion of funds under management. Little has changed since then. Last month Colonial First State (owned by Commonwealth Bank) announced its intention to terminate its $850 million Mortgage Income Fund and that it was unlikely to make distributions for the next 18 months whilst it is wound up over the next 4 years. This is an indication of the difficulty our industry is currently experiencing.

Over the last 12 months we have not been idle and have been actively managing the loan book to repatriate cash to the Fund and reduce Premium Income Fund (PIF) borrowings. We are pleased to advise the bank facilities have now been fully repaid. It is not intended to undertake any further borrowings in the immediate future.

In the Market Review sent to all investors last October we estimated impairments to the Fund as at 30/06/09 at 15%. The final figure was slightly lower at 14.5%.

Whilst this represents the bulk of impairments to PIF there have been some further impairments in the six month period ending 31/12/09 and following completion of the recent review of the Fund in association with our auditors, KPMG, we have made provision for additional impairments of approximately 3% giving a total impairment of your original investment of approximately 17.5%.

10. On 15 October 2010 the defendant again wrote to the plaintiff. The letter included the following:
    

As advised in previous correspondence the purpose of this letter is to keep you informed of the position of your Investment and the Shakespeare Haney Premium Income Fund generally.

Over the last few months we have been obtaining evidence of current market values of a number of properties for the purpose of our review of the Fund status and completion of the audit for the financial year ending 30.6.10. That audit was completed on time and financial statements lodged with the Australian and Securities and Investments Commission.

What our review indicated was that although it was appropriate to write down a further impairment of 6.27% of the original investment value the property market may otherwise have reach a level of stability since March. An updated Investment Confirmation Statement will be forwarded to you in due course.

11. On 15 October 2010 the plaintiff, through solicitors, wrote to the defendant seeking disclosure and inspection of documents. I shall refer to this letter as "the October letter".
    
12. It is necessary to set out the October letter in full:
    

1. We act for Dorise Enid Silkman ( Silkman ).

2. Silkman has been and is a holder of units in the Fund since at least March 2004 (Investment Confirmation Statement dated 23 March 2004 enclosed ).

3. Silkman's initial investment was $50,000 and $25,000 was withdrawn on or about 5 March 2008 leaving a balance of $25,000.

4. Silkman received notification from Shakespeare Haney Securities Limited ( SHSL ) (the responsible entity of the Fund and its trustee) that her investment had been impaired by an amount of $3,620.61 as at 30 June 2009 and by a further amount of $713.26 as at 31 December 2009 giving a total impairment of approximately 17.5% (see letter dated 15 March 2010 and Statement of Funds 17 March 2010 enclosed ).

5. We note that on or about 28 January 2009, all withdrawals from the Fund were suspended. According to SHSL's letter to investors dated 28 January 2009 the suspension was due to the reduced levels of cash in the Fund and not any capital loss.

6. According to the Annual Financial Report to 30 June 2010, there have since been significant impairment losses.

7. As of the date of this letter, withdrawals from the Fund continue to be suspended.

8. At all material times, KPMG has been the Fund's Compliance Plan auditor.

Requests

9. Silkman requests that SHSL agrees within 7 days from the date of this letter to do the following:

(a) make available pursuant to Silkman's right in equity as a beneficiary of the Fund for inspection and copying by Silkman or her agent or legal representative the documents referred to in Part A of the Schedule to this letter;

(b) make available pursuant to s.247A(1) and (2) of the Corporations Act 2001 (C'th) for inspection and copying by Silkman or her agent or legal representative the documents referred to in Parts A and B of the Schedule to this letter;

(c) approve pursuant to s.177(1A)(b) of the Corporations Act Silkman (including her agents, legal representatives and parties who may provide litigation funding, to use any information obtained from the register kept under Chapter 2C of the Corporations Act ( Register ) to contact or send information to the existing members of the Fund about and concerning the matters referred to in this letter.

The Constitution and the Compliance Plan

10. We note that the Fund is governed by a constitution, which is dated 1 September 2003 ( Constitution ). A number of the provisions of the Constitution are noted below.

11. In accordance with clause 2 of the Constitution, SHSL:

(a) declared that it would hold the assets of the Fund on trust for the members of the Fund; and

(b) agreed to manage the Fund upon and subject to the terms and conditions contained in the Constitution.

12. Various duties and obligations are imposed on SHSL by the Constitution. For example, clause 4.5 provides that SHSL is required:

(a) to exercise the degree of care and diligence a reasonable person would exercise if they were in SHSL's position;

(b) to comply with the Compliance Plan; and

(c) to carry out or comply with any other duty that is conferred on it by the Constitution.

13. Clause 5.1 imposes various duties on the directors, secretaries and executive officers of SHSL.

14. The duties imposes on SHSL and its officers under clauses 4.5 and 5.1 mirror the duties imposed on them by the Corporations Act sections 601FC and 601FD, respectively, and are in addition to the duties imposed on them by the common law and in equity.

15. Clause 7 of the Constitution provides that it is the role of SHSL to invest the Fund's assets in "Authorised Investments" which are defined in clause 1.1 to mean Mortgage Investments and certain other investments.

16. Mortgage Investment and Land are defined in clause 1.1 as follows:

'Mortgage Investment' means a loan secured by a registered mortgage over Land subject to the following provisions:

(a) the mortgage will rank as a first mortgage over the mortgaged Land; and

(b) the total of all money initially advanced and secured over such Land shall not exceed:

(i) 80% of the value of the Land that has been valued by an Approved Valuer as shown in the valuation or agent appraisal furnished by an Approved Valuer; or

(ii) 95% of the value of the Land, that has been valued by an Approved Valuer as shown in the valuation or agent appraisal provided the loan is secured by Mortgage Insurance to a level approved by the Manager; and

(c) The loan shall be a maximum of 25 (twenty-five) years".

' Land' means a freehold estate of Crown lease-hold or interest in real property in any part of the Commonwealth of Australia or any state or territory thereof and includes buildings, fixtures and fittings (including furnishings) and other improvements erected or installed thereon.

17. By reason of clause 12.1, SHSL is required to maintain an up-to-date register of members including information such as the name and address of the member and their relevant interests in the Fund.

18. Clause 12.4 contains provisions relating to when SHSL need not allow inspection of the register. It does not limit the circumstances in which SHSL is entitled to make the register available to members.

19. The Fund's Compliance Plan ( Compliance Plan ) provides that the Fund's property must be invested in accordance with the Constitution, i.e. Authorised Investments as defined in the Constitution (note in this regard clause 6 of the Plan).

Financial condition of the Fund

and potential breaches of the Constitution and Corporations Act

Mortgage investment default

20. We note the following from a review of the Fund's annual financial reports:

(a) the Fund's assets as at 30 June 2010 were approximately $145 million (30 June 2010 report);

(b) as at 30 June 2010 approximately $118 million of the above $145 million were in the form of mortgage loans (30 June 2010 report);

(c) during the year ended 30 June 2010 SHSL extended the terms of 100% of the mortgage loans totalling $144.4 million. Without extensions, all these loans would have been overdue by more than 1 year (see notes 9 and 13). Unrealised impairment losses of approximately $16.7 million were recognised in relation to these extended loans (30 June 2010 report);

(d) during the year ended 30 June 2009 SHSL extended the terms of 100% of the mortgage loans totalling $228.1 million. Without extensions, all these loans would have been overdue by more than 1 year

(e) during the year ended 30 June 2008, the Fund extended the terms of mortgage investments totalling approximately $67 million and without extensions, these loans would have been overdue by more than 1 year (30 June 2008 report); and

(f) during the year ended 30 June 2007, the Fund extended the terms of mortgage investments totalling approximately $63 million and without extensions, these loans would have been overdue by more than 1 year (30 June 2007 report).

21. It would therefore appear that as at 30 June 2010, but for the extensions, the whole mortgage investment book was in default for at least 12 months and that possibly $63 million of that book had been in default for at least 3 years.

22. Including for these reasons, Silkman is concerned that many of the mortgage investments may not have been suitable and proper investments for the Fund, and that they may have been made in breach of the provisions of the Constitution and the Compliance Plan and in breach of SHSL's duties and of the duties of the directors and officers. Further, there may have been breaches concerning the extensions of the terms of the mortgages and in not exercising powers as mortgagee, including the power of sale. Silkman is also concerned there may have been breaches by the Compliance Plan auditors, KPMG, in connection with these matters.

Nature of the investments

23. We note that, based on the most recent valuation by SHSL, unit holders' investments in the Fund (including Silkman) have suffered further impairment losses in addition to the 17.5% referred to in March 2010. Presumably this is due to the value of the mortgaged Land dropping.

24. On the basis of a loan to value ratio ( LVRs ) of 80%, a 17.5% impairment represents a decrease in value of the mortgaged Land of 34%.

25. We note that it was represented in the PDS dated 2 May 2006 that typically LVRs were between 60% and 70%. At an LVR of 70%, an impairment of 17.5% represents a decrease in value of the mortgaged Land of approximately 42%. At an LVR of 60%, an impairment of 17.5% represents a decrease in value of the mortgaged Land of approximately 51%.

26. The Constitution provides for certain LVRs for any Mortgage Investments. The Constitution provides that in calculating the LVR, the value of the land could include buildings etc and improvements actually on the land. The Constitution does not on its face permit an estimated value of the completed project to be taken into account by SHSL when considering the amount of the Fund's money that could be lent on a project (i.e. "as if complete" valuations were irrelevant). The Constitution requires "as is" valuations for the purposes of calculating the LVRs and setting lending limits for projects.

27. Silkman is concerned that the dramatic drop in the value of the assets of the Fund may be attributable to money being lent originally against construction, development and other projects on the basis that the money initially advanced and secured exceeded 80% of the Land value, in breach of the Constitution. This may have occurred because money was lent on the basis of "as if complete" valuations and that the estimated value of the projects has dramatically fallen and that this has caused the impairment referred to above. In this regard we note that according to note 13 to the 30 June 2010 Annual Report, the Mortgage Investment types of the Fund included:

(a) Construction residential (6.5%);

(b) Developmental sites (21.7%); and

(c) Vacant land (13%).

28. If Silkman's concerns are correct and SHSL and its directors and officers have invested the Fund's assets in projects outside the investment criteria in the Constitution, there has been a breach of the Constitution and the Compliance Plan by SHSL, its officers and potentially a breach by the Compliance Plan auditors (KPMG) of their obligations under the Corporations Act .

Equititrust Income Fund

29. We note the following from a review of the Fund's annual financial reports:

(a) for the financial year ending 30 June 2008, SHSL invested $8 million in Equititrust Income Fund and received a dividend of $300,000 (being a return of 3.75%) (30 June 2008 report);

(b) for the financial year ending 30 June 2009, the Fund's investment of approximately $4.6 million in the Equititrust Income Fund was illiquid and cannot be redeemed (if at all) until the Equititrust Income Fund becomes liquid (30 June 2010 report);

(c) an unlisted managed investment scheme (presumably the Equititrust Income Fund) in which the Fund had an investment of approximately $4.9 million as at 31 December 2009 remained largely suspended to the repayment of redemptions (31 December 2009 report); and

(d) John Haney, a director of SHSL, is also a director of Equititrust Limited the responsible entity of the Equititrust Income Fund (30 June 2010 report). Accordingly, Equititrust Income Fund is a related party to the Fund.

30. We understand in relation to the Equititrust Income Fund that:

(a) it is a mortgage trust and a registered managed investment scheme;

(b) Equititrust Limited is the trustee, responsible entity and manager of the fund;

(c) it takes mortgages over property (with the majority in property development) and holds cash investments. Mortgage loans are typically made for loan terms not exceeding a maximum of two years. Investors' funds are spread across a portfolio of mortgages.

31. Silkman is concerned that an investment by the Fund in another mortgage fund and in this particular mortgage fund may have involved a breach of various duties by SHSL and/or its directors or officers and by the Fund's Compliance Plan auditors. It is difficult to identify the commercial rationale for the investment in Equititrust Income Fund as this fund appears to undertake the same activities of the Fund and is not guaranteed in any way. The value of the investment by SHSL in Equititrust Income Fund would appear to be in serious doubt. This investment would appear to be outside the categories of "Authorised Investments" under the Constitution and therefore made in breach of the Constitution by SHSL and/or its directors or officers and also involve a breach by the Fund's Compliance Plan auditors.

Right to inspect trust documents in equity

32. A beneficiary of a trust has a right in equity to inspect the trust documents concerning the true nature, condition and value of the trust assets. 1

33. The right of inspection is "proprietary in nature" as it is annexed to the beneficial interest of the beneficiary in the trust assets. 2

34. As a beneficiary of the Fund, Silkman has a right to inspect the Fund documents concerning the true nature, condition and value of the Fund assets.

Inspection of documents pursuant to Corporations Act , s.247A(1) & (2)

35. s.247A provides:

"(1) On application by a member of a company or registered managed investment scheme, the Court may make an order:

(a) authorising the applicant to inspect the books of the company or scheme; or

(b) authorising another person (whether a member or not) to inspect books of the company or scheme on the applicant's behalf.

The Court may only make the order if it is satisfied that the applicant is acting in good faith and that the inspection is to be made for a proper purpose.

.

(2) A person authorised to inspect books may make copies of the books unless the Court orders otherwise."

36. As a member of the Fund, Silkman is entitled to an order pursuant to s.247A(1) and (2) authorising her, her agent or legal representative to inspect and copy the books of the Fund.

Good faith

37. Silkman is acting in good faith in seeking to inspect the documents referred to in Parts A and B of the Schedule.

Proper purposes

38. Silkman seeks to inspect the documents referred to in Parts A and B of the Schedule for proper purposes, which include to enable her to:

(a) determine the true value of her interest in the Fund, having regard to (but not limited to) the matters set out in this letter;

(b) determine whether there have been any breaches of trust, the Constitution, and/or the Corporations Act by SHSL and/or its directors and officers or by the Fund's Compliance Plan auditors, including in relation to the matters set out in this letter;

(c) determine whether causes of action exist against SHSL and/or its directors and officers or by the Fund's Compliance Plan auditors;

(d) determine whether a recovery will be made in any proceedings against SHSL, all or any its directors and officers or the Fund's Compliance Plan auditors and therefore the utility of any such proceedings. Relevant to this matter is the existence and the nature of the insurance cover of SHSL and/or its directors and officers 3;

(e) determine whether she wishes to commence representative proceedings against SHSL, all or any its directors and officers or the Fund's Compliance Plan auditors;

(f) enable her to communicate with other possible class members about the possibility of action against SHSL, all or any its directors and officers or the Fund's Compliance Plan auditors.

39. The ability of Silkman to bring valid claims against SHSL and/or its directors and officers or the Fund's Compliance Plan's auditors will depend in part on Silkman's ability to fund the proceedings.

Conclusion

40. If you do not agree within 7 days from the date of this letter to the requests contained in paragraph 9 above, Silkman will forthwith make applications to the Court:

(a) pursuant to Silkman's right as a beneficiary of the Fund, for an order to inspect and copy the documents referred to in Part A of the Schedule;

(b) pursuant to s 247A(1) and (2) of the Corporations Act , for an order that you authorise Silkman or her agent or legal representative to inspect and copy the documents referred to in Parts A and B of the Schedule; and

(c) pursuant to the Court's equitable jurisdiction, for an order directing you to grant your approval under s.177(1A)(b) of the Corporations Act for Silkman (including her agents, legal representatives and parties who may provide litigation funding) to use any information obtained from the Register to contact or send information to existing and former members of the Fund about and concerning the matters referred to in this letter.

41. We ask that you produce this letter on any question of costs.

Insurances

42. We also request that SHSL notify its insurers and any insurers of SHSL's directors and officers in relation to the matters identified in this letter as a matter of urgency.

Schedule to Letter to Directors of Shakespeare Haney Securities Limited

Notes:

"Fund" means Shakespeare Haney Premium Income Fund;

"period" means the period from 5 September 2003 to 30 June 2010;

"SHSL" means Shakespeare Haney Securities Limited, the responsible entity of the Fund.

Part A

1. The Investments Register of the Fund for the period.

2. The Prudential Lending Manual referred to in the Fund's Annual Financial Report dated 30 June 2009 and any other versions of this Manual that were applicable in the period.

3. All credit applications, credit assessments, credit reference searches, bankruptcy searches, valuations, appraisals, estimates, financial statements, securities offered or provided and transaction documents in relation to:

(a) any loan or investment made by or on behalf of the Fund during the period;

(b) any impairment or provision for impairment concerning any mortgage loan made by or on behalf of the Fund during the period;

(c) any variation or extension of a mortgage loan made by or on behalf of the Fund during the period.

4. All documents recording or evidencing any communications between SHSL and any borrower from the Fund during the period in relation to any actual or potential default by the borrower of its obligations to the Fund.

Part B

5. All documents recording or evidencing any communications between SHSL, as responsible entity of the Fund, and KPMG during the period in relation to:

(a) any audit of SHSL's compliance with the Compliance Plan;

(b) KPMG's audit opinion or proposed audit opinion concerning SHSL's compliance with the Compliance Plan;

(c) the loans and investments made by or on behalf of the Fund; and

(d) any impairment, variation or extension of the mortgage loans made by SHSL on behalf of the Fund.

6. Any insurance policy that may indemnify SHSL for any civil liability to third parties for claims against SHSL arising from any acts or omissions by SHSL in relation to the conduct of the Fund or its assets or the investments made by the Fund during the period.

7. Any insurance policy that may indemnify the directors and or officers of SHSL for any civil liability to third parties for claims made against them arising from any acts or omissions by them in relation to the Fund or its assets or the investments made by the Fund during the period.

8. All documents recording or evidencing correspondence with any insurance broker or insurer in relation to the above policies or any notification of circumstances that may give rise to a claim or any claim under any of them during the period.

13. The defendant's solicitors responded as follows:
    

Your client's requests for information are rejected. There is no right in equity in the circumstances of this case. Further, any application made under s 247A of the Corporations Act would not satisfy the elements of good faith or proper purposes. There is also no approval existing within the meaning of s 177(1A)(b). As to this last matter, we also observe that the purpose for which the use of the information is apparently sought is not relevant to the holding of, or the exercise of rights attaching to, your client's investment.

THE PROCEEDINGS

14. By Summons sued out of this Court on 12 November 2010, the plaintiff seeks an order that the defendant produce for inspection and copying by her, her agent or legal representative the following documents :
    

all applications, valuations, appraisals, estimates, loan agreements, mortgages and other securities offered or provided;
all variations or extensions of any contractual term;
all communications between the defendant and the borrower in relation to any;
actual or potential default by the borrower of its obligations to the Shakespeare Haney Premium Income Fund (the "Scheme");
variations or extensions of any contractual term; and
all accounts recording:
any advances made or repayments received by or on behalf of the Scheme;
any impairments or provisions for impairment,
which relate to any of the mortgage investments or loans by the Scheme that were past due, overdue or the terms of which had been extended during any of the financial years ending 30 June 2007, 2008, 2009 and 2010 .

15. The plaintiff does not seek orders for inspection under the Corporations Act 2001 (Cth) as the October letter had foreshadowed.
    
16. Mr A S Martin SC, together with Mr G M Drew of counsel, appeared for the plaintiff. Mr D Kelly SC together with Mr D Piggott of counsel appeared for the defendant.
    
17. The plaintiff put her case relying exclusively on the line of authority commencing in the modern era with Re Londonderry's Settlement; Peat v Walsh [1965] Ch 918 and culminating most recently in McDonald v Ellis [2007] NSWSC 1068; (2007) 72 NSWLR 605, which attributes a beneficiary's right to inspect "trust documents" held by the trustee to an equitable proprietary interest of the beneficiary in them.
    
18. The underlying idea is that such documents are themselves either trust property or are so closely related to trust property that they may be characterised as documents in which the beneficiary has such an interest. In Re Simersall; Blackwell v Bray [1992] FCA 221; (1992) 35 FCR 584 at 589 Gummow J described this right as proprietary in nature although falling short of a full beneficial interest. It is not necessary to contribute to the prolixity of this judgment by citing the authorities which have followed this approach. Bryson AJ referred to a number of them in McDonald v Ellis . I will call this approach the Londonderry approach.
    
19. On the Londonderry approach the plaintiff need do no more than establish that the defendant is her trustee and that the documents sought are so-called trust documents. The relief is as of right and does not require the exercise of any judicial discretion in favour of the plaintiff. The plaintiff put that trust documents means documents which evidence or record the nature, condition, and value of the assets of the Scheme, and that all the documents called for by the Summons meet these criteria.
    
20. In Schmidt v Rosewood Trust [2003] UKPC 26; [2003] 2 AC 709 the Privy Council declined to follow Londonderry . Taking what Lord Walker at [51] described as "a more principled and correct approach", it held that a trustee has no equitable proprietary interest in documents so as to give rise to a right of production and inspection but that, as one aspect of the Court's inherent jurisdiction to intervene in the administration of trusts, an order for inspection and production of documents by a trustee may be made at the instance of the beneficiary. I will call this the Schmidt approach.
    
21. In Avanes v Marshall [2007] NSWSC 191; (2007) 68 NSWLR 595, Gzell J followed the Schmidt approach. His Honour made it clear that this did not abrogate the trustee's duty to keep proper accounts and the beneficiary's right to inspect them.
    
22. In Gray v BNY Trust Co of Australia [2009] NSWSC 789 at [33] Bergin CJ in Eq referred to the different views in this Court as well as to writings on the subject.
    
23. My attention was not drawn to any appellate authority in Australia which has squarely considered whether the Londonderry approach or the Schmidt approach should now be followed.
    
24. In Schmidt v Rosewood Trust at [52] Lord Walker did, however, consider that there was support for its approach in Hartigan Nominees v Rydge (1992) 29 NSWLR 405.
    
25. In Rouse v IOOF Australia Trustees Ltd [1999] SASC 181; (1999) 73 SASR 484 at [87] and following, [101] and [102] Doyle CJ, with whom Perry J and Martin J agreed, referred to the two lines of authority, finding it unnecessary to resolve whether one or the other should be followed because the issue there before the Court was whether a trustee had a discretion to decline to provide information. The Court considered that a trustee may be entitled to decline to provide information to particular beneficiaries inspection when the trustee has reasonable grounds for considering that to do so will not be in the interests of the beneficiaries as a whole, and will be prejudicial to the ability of the trustee to discharge its obligations under the trust. The availability of the discretion will depend on the circumstances of the particular case.
    
26. The defendant put that the Summons should be dismissed because the Londonderry approach should not be followed and the plaintiff does not have the right to inspect the documents which she asserts. Further, it put that it had a discretion to decline the plaintiff's request, which it properly exercised.
    
27. Absent clear appellate guidance, I propose to follow the Schmidt approach. A consideration of the authorities reveals that the Londonderry approach has jurisprudential difficulties which the Schmidt approach does not have, including:
    

ascribing a workable and principled definition of the term "trust documents";
divining the nature of the beneficiary's so-called proprietary interest in such documents. In Hartigan Nominees v Rydge at [444] Sheller JA articulated this difficulty by describing this "trail" as unhelpful if not false;
that on the Londonderry approach a discretionary beneficiary who has no lesser interest in the due administration of the trust (but who has no proprietary interest in the assets) should, illogically, be denied disclosure;
that authorities which have taken the Londonderry approach have limited the beneficiary's right to disclosure by reference to the interests of third parties in maintaining confidentiality. It is difficult to reconcile this limitation with the principle for which Londonderry stands; and
reconciling a beneficiary's entitlement to documents such as a settlor's statement of intention or a constituent trust deed (which undoubtedly a beneficiary should properly have) with the fact that these instruments are themselves not assets or appurtenant to assets of the trust.

28. It follows that the plaintiff's claim to inspect documents as of right, fails.
    
29. I should say, however, that even had I taken the Londonderry approach I would have refused relief in the terms claimed because the documents called for by the plaintiff go well beyond even the definition of trust documents contended for by her, that is, documents which evidence or record the nature, condition and value of the trust assets. Examples, not exhaustive, follow.
    
30. Firstly, the Summons seeks "securities offered...which relate to any of the mortgage investments or loans...". This formulation extends to securities which were offered but not given and therefore not assets of the trust.
    
31. Secondly, the Summons requires production of "all communications" between the defendant and the borrower "in relation to any actual or potential default" by the borrower "...or variations or extensions or any contractual term..." "which relate to any of the mortgage investments or loans...". The use together of the phrases "in relation to" and "which relate to" together with the reference to potential defaults extends the category of documents well beyond those which evidence or record the nature, condition and value of the trust assets.
    
32. Thirdly, the Summons seeks all accounts recording advances and repayments. This would extend to every primary recording of every payment and receipt on every mortgage. This goes well beyond documents which evidence or record the nature, condition and value of the trust assets.
    
33. Recognising these manifest difficulties, at the close of her submissions in reply, the plaintiff sought an opportunity to reconsider and reformulate the Summons. Given the lateness of the request, I did not accede to it. I said that I would determine the matter at the level of principle. Having regard to my conclusion that the Schmidt approach should be followed, the occasion for the plaintiff to have a further opportunity to reformulate her demand does not arise. One might also anticipate stiff resistance to any such application in the circumstances.
    
34. It is accordingly not necessary to consider whether the defendant, in declining to provide the information, properly exercised the discretion described in Rouse v IOOF Trustees . It was justified in refusing production in the terms sought in any event.
    

THE SCHMIDT APPROACH

35. In reply, and as a fallback position, on the assumption that the Court followed the Schmidt approach, the plaintiff put that the Court should order inspection because she "has concerns" arising out of
    

an unexplained discrepancy between the defendant's financial statements as at 30 June 2010 and a document published by the defendant as at 30 June 2010 entitled "Loan Portfolio Diversification";
the apparent extension of the entire mortgage portfolio in circumstances where there have been significant defaults for years, yet the power of sale has not been exercised, and the defendant's financial statements reveal a risk that it cannot continue to operate as a going concern; and
the defendant having apparently having advanced money to mortgagors in breach of investment criteria imposed by the Constitution in particular by lending on the basis of "as if complete" valuations as opposed to "as is" valuations (as referred to in the October letter).

36. As to her first concern, the plaintiff drew attention to the fact that according to note 13 of the financial statements during the year ended 30 June 2010 the Scheme extended the terms of 45 mortgage investments totalling $144,408,717 (that is, ostensibly, the entirety of its mortgage loan portfolio), and that had it not been for these extensions the mortgage investments would have been overdue by more than one year at 30 June 2010.
    
37. On the other hand, according to the Loan Portfolio Diversification at 30 June 2010, there were loans outstanding of $149,435,000 and 5 loans representing $22.3m (14.9%) that were in arrears greater than 120 days.
    
38. As to her second concern, the plaintiff drew attention to what was asserted in the October letter and to material produced by the defendant including the following.
    
39. The defendant's financial statements as at 30 June 2007 reveal that it had assets in the form of mortgage loans of $308,232,310 and net assets (after taking into account interest bearing liabilities of $64m) of $251,146,007. According to note 9 to the financial statements two loans were considered past due, being that their interest payments were greater than 90 days in arrears. According to the note, the defendant considered these loans to be fully recoverable and did not anticipate any loss of investors' funds. Accordingly no provision for impairment had been raised.
    
40. Its financial statements as at 30 June 2008 reveal that it had mortgage loans of $288,638,239 and that its interest bearing liabilities were over $92m. Its net assets were $218,581,476. Note 12 reveals that there were mortgage investments of $7,105,067 past due 31-120 days and mortgage investments of $4m past due more than year. The note further reveals that during the year the Scheme extended the terms of 25 mortgage investments totalling $64,646,115 (2007: $62,590,332) from longstanding borrowers and that if it had not been for these extensions the mortgage investments would have been overdue by more than 1 year at 30 June 2008. No impairment loss was recognised. It is worthy of note that the 2007 financial statements do not themselves reveal that during that year, 23 mortgage investments were extended.
    
41. Its financial statements as at 30 June 2009 reveal that it had mortgage loans of $206,930,368 and that its interest bearing liabilities were over $62m. Its net assets were $162,000,415. It made a net loss of $27,370,961. Note 3 stated the defendant's significant accounting policies including that its accounts had been prepared on a going concern basis but stated that in the event that the Scheme could not continue as a going concern it may not realise its assets or settle its liabilities in the normal course of operations and at the amounts stated in the financial report. According to note 9 the defendant held mortgage loans directly of $228,107,811 and had recorded unrealised impairment losses in respect of mortgage loans of $21,177,443 (2008: nil). Note 13 reveals that during the year ended 30 June 2009 the Scheme extended the terms of 67 (2008: 25) mortgage investments totalling $228,107,812 at 30 June 2009 (2008: $64,646,115) from longstanding borrowers. If it had not been for these extensions, the mortgage investments would have been overdue by more than one year at 30 June 2009. Unrealised impairment losses of $21,177,443 were recognised in relation to these extended loans (2008: nil impairment loss).
    
42. Also, included in the 2009 financial statements was an independent auditor's report which stated that material uncertainty existed which cast significant doubt about the Scheme's ability to continue as a going concern and whether it would realise its assets and extinguish its liabilities in the normal course of business and at the amount stated in the financial report.
    
43. The basis for the plaintiff's third concern appears from the October letter, in particular, par 23 to 28.
    
44. The defendant put that the Court should not intervene because
    

the defendant has complied with statutory and equitable obligations to provide information and has offered to provide further information;
in declining disclosure it properly exercised a discretion;
documents which the plaintiff seeks include internal documents recording assessments and analyses of investments which the defendant has, under cl 7.2 of the Constitution, complete and unfettered discretion to make;
much of the material sought by the plaintiff is confidential, having been provided on that basis by the defendant's borrowers and prospective borrowers. Revelation to the plaintiff of this material will result in the breach by the defendant of obligations of commercial confidence; and
the plaintiff is motivated by improper purposes and is on a fishing expedition because she is seeking documents to enable a decision to be made whether representative proceedings should be commenced against the defendant, to assist in communicating with other possible class members and to assist in obtaining litigation funding.

45. It should be borne in mind that the plaintiff's claim is not for preliminary discovery or for discovery in proceedings already commenced. Part 5 r 5.3 of the Uniform Civil Procedure Rules 2005 (NSW) facilitates preliminary discovery to enable a party who after having made reasonable enquiries has been unable to obtain sufficient information to decide whether or not to commence proceedings against a prospective defendant, to obtain preliminary discovery from that prospective defendant. It should also be borne in mind that the plaintiff's claim is not for inspection of the trust accounts.
    
46. Whilst the defendant undoubtedly has a fiduciary obligation to the plaintiff to provide information as to the amount of the trust property and its investments, the extent of that obligation is affected by the circumstances of the relationship including the terms of the contract between them, in this case the Constitution; Hospital Products Ltd v United States Surgical Corp [1984] HCA 64; (1984) 156 CLR 41 at 97; Kelly v C A & L Bell Commodities Corp (1989) 18 NSWLR 248.
    
47. In Hartigan Nominees v Rydge (1992) 29 NSWLR 405 at [419]-[420] Kirby P commented that trustees are nowadays, with increasing frequency, large corporations and are rarely the group of devout clergymen portrayed in Re Beloved Wilke's Charity [1851] EngR 375; 42 ER 330. His Honour referred to the likelihood that trustees take advice, are paid fees for the performance of their services and are accustomed to providing reasons and explanations including to courts of law.
    
48. Also unlike the circumstances of those clergymen, the Act and the Constitution impose upon the defendant detailed and onerous obligations (including those described below) calculated to ensure that investors are provided with information sufficient to enable them to assess the value and performance of the assets underlying their investment.
    
49. Section 601FA of the Act provides that "the responsible entity of a registered scheme must be a public company that holds an Australian financial services licence authorising it to operate a managed investment scheme". Section 601FB(1) provides that "the responsible entity of a registered scheme is to operate the scheme and perform the functions conferred on it by the scheme's constitution and this Act". Section 601FC(1)(g) requires the scheme's compliance plan to meet the requirements of section 601HA which provides that the compliance plan must have some functioning compliance committee which has access to the Scheme's accounting records and to the auditor of the Scheme's financial statements and access to information relevant to the responsible entities compliance with the Act. The plan must ensure that Scheme property is valued at regular intervals, that the plan is regularly audited and that adequate records of the Scheme's operation are kept.
    
50. Additionally, cl 25.5 of the Constitution requires the defendant to report to Members for each Financial Year by way of a financial report, directors' report, and Auditors' report within three months after the end of the year.
    
51. Apart from annual financial statements the defendant regularly publishes a document styled "Loan Portfolio Diversification" which provides information about the Scheme's loan portfolio.
    
52. The Scheme also regularly publishes a "Benchmark Disclosure" report which compares its performance to benchmarks set by the Australian Securities and Investments Commission.
    
53. Taking the Schmidt approach, the Court would intervene were it shown that the defendant has fallen short of its duty to make disclosure to the plaintiff, by requiring such disclosure as is needed to remedy the default. It would mould any orders to take into account competing interests for and against disclosure.
    
54. For the following reasons I do not consider that the Court should exercise its discretion to intervene to grant the relief the plaintiff claims.
    
55. Firstly, accepting that the plaintiff (who did not give evidence) has genuine concerns about the matters articulated above, she did not establish either that the defendant has fallen short of its disclosure obligations under the Act or the Constitution or that inspection of the wide scope of documents sought by the Summons is necessary to cure any such deficiency. This is perhaps understandable given that the Summons was framed in reliance on the Londonderry approach.
    
56. Secondly, as to the plaintiff's concerns generally, they relate to whether the information which has been provided is sufficient for her to assess what the trustee has done discloses any actionable breaches of trust than to whether it has fallen short of complying with its duty to provide information.
    
57. Moreover, as to her first concern, whilst there appears to be a discrepancy between the Loan Portfolio Diversification as at 30 June 2010 which shows that there was a loan outstanding of $149,435,000 whereas the defendant's financial statements as at 30 June 2010 reveal mortgage loans of $144,836,721 and unrealised impairment losses of $26,733,260 (yielding an asset value of $118,103,461 in the form of loans), this issue first emerged and was relied upon by the plaintiff in oral submissions, whereupon the defendant offered to provide a formal explanation for it.
    
58. As to her remaining concerns, the defendant expressed a willingness to answer specific questions (under the supervision of the Court), a proposal which drew no ostensible response from the plaintiff who persisted in her application in the terms framed. There was no suggestion that the defendant's offers were not genuine.
    
59. Thirdly, it seems to me that given the wide ambit of the documents sought, the defendant was justified in declining the request for inspection.
    
60. I should record that I would not uphold the defendant's submission that it is entitled to withhold information because of its unfettered discretion to make investments. Clause 7.2 of the trust deed limits that discretion to invest in Authorised Investments.
    
61. I would also not uphold the defendant's submission that relief should be withheld because the plaintiff is acting with improper purposes. Were the plaintiff to have established an entitlement to disclosure, her intentions to use the documents to seek an appropriate remedy would not erode that entitlement.
    
62. As to confidentiality, given the result, the issue does not arise. However, and in any event, the parties were agreed that if documents were to be made available for inspection, orders could be framed to permit any person who might have an interest in keeping them confidential to be heard.
    

CONCLUSION

63. The summons is dismissed with costs.
    
64. This outcome of course does not preclude the plaintiff, if so advised, from moving for preliminary discovery, provided she meets the requirements of the applicable rules.
    
65. The exhibits are to be returned.
    

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