Schmidt v Rosewood Trust Ltd

Facts

Mr Vadim Schmidt sought disclosure of accounts and information in relation to two trusts set up by his father, who had died intestate. Rosewood Trustee Ltd was the trustee of the two relevant trusts, having assumed that office from Lorne House Trust Ltd (the original trustee). Mr Schmidt had a discretionary interest under the settlement and sought disclosure in his capacity as a beneficiary as well as in his capacity as the administrator of his father's estate.

The defendant trustee argued that Schmidt was not entitled to disclosure of the trust documents because he did not have a proprietary interest under the trust (being only "a mere object of a power"). Nor, the defendant trustee argued, had the father been the settlor under the trust, which had been executed by Pacquerette Ltd as settlor (the nominee of Mr Schmidt).

Advice

The Privy Council rejected the previous proprietary explanation of a beneficiary's right to disclosure that had been set out in Re Londonderry's Settlement [1965] Ch 918 per Salmon LJ. Rather, Lord Walker (giving the advice of the Privy Council) held that: "the Board cannot regard it as a reasoned or binding decision that a beneficiary's right of claim to disclosure of trust documents or information must always have the proprietary basis of a transmissible interest in trust property." (at [50]) Lord Walker went further, writing that a proprietary interest under a trust "is neither sufficient nor necessary" (at [54]). Disclosure to a beneficiary having a proprietary interest has thus become a matter of discretion, although the nature of the interest is relevant to the court's consideration of whether to exercise its discretion.

Lord Walker made the following clear.

The Application of Schmidt v Rosewood in Foreign Jurisdictions

The change in the law authored by Lord Walker in Schmidt v Rosewood has been accepted in New Zealand (see, e.g., Foreman v Kingston [2004] 1 NZLR 841 per Potter J). It has not, however, been accepted in Australia, where judges of the Supreme Court of New South Wales -- a jurisdiction known for its superior equity jurisprudes but arguably in error on this occasion -- have rejected Schmidt v Rosewood on two occasions. In Yates v Halliday [2006] NSWSC 1346 and McDonald v Ellis [2007] NSWSC 1068, two judges rejected Schmidt v Rosewood. Nevertheless, one might distinguish both cases on the basis that the relevant trustee (who was clearly in default) sought to refuse disclosure to the requesting beneficiary and so lessen the prospects of their being held accountable. In both cases, therefore, the incorporation of Schmidt v Rosewood into Australian law rendered it more likely (although only marginally so) that the trustee would be able to decline to give disclosure compared to the prior proprietary basis for the rule. A concern with this consequence appears to have -- arguably -- led the court into error.

Bryson AJ in McDonald v Ellis was critical of Lord Walker for propounding a new rule on the basis that it was simply (in Bryson AJ's words) perceived by his Lordship to be "a better rule" (at [51]). Bryson AJ did, however, concede that the rule in Schmidt v Rosewood might be "appropriate where the interest of the beneficiary is no higher than that of the potential object of a discretionary trust ..." (at [52]). If that is right (and it clearly is), Bryson AJ's decision as to Schmidt v Rosewood is open to challenge. The better view is that a beneficiary, regardless of their interest, may (theoretically speaking) obtain disclosure as each beneficiary has an interest in the due administration of the trust, but that the question of whether a court would grant such disclosure depends on the circumstances of the case and the question whether disclosure to the requesting beneficiary is necessary for the minimal accountability of a trustee required by the laws of equity.