Clay v Karlson

[1999] WASC 152

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   CLAY -v- KARLSON & ANOR [1999] WASC 152

CORAM:   MASTER SANDERSON

HEARD:   13 & 20 AUGUST 1999

DELIVERED          :   30 AUGUST 1999

FILE NO/S:   CIV 2388 of 1996

BETWEEN:   MARK GREGORY CLAY

Plaintiff

AND

KEVIN GUSTAV KARLSON
First Defendant

MARIE KURELIC
Second Defendant

Catchwords:

Practice and procedure - Claim for privilege by executor of will in action by beneficiary - Whether open to claim privilege - Review of authorities

Legislation:

Nil

Result:

Claim for privilege upheld

Representation:

Counsel:

Plaintiff:     In person

First Defendant             :     No appearance

Second Defendant         :     Mr R K F Davis

Solicitors:

Plaintiff:     In person

First Defendant             :     No appearance

Second Defendant         :     Tydde & Co

Case(s) referred to in judgment(s):

AG (NT) vKearney (1985) 158 CLR 500

Follett v Jefferyes [1850] 61 ER 1

Gouraud v The Edison Gower Bell Telephone Company of Europe Ltd [1888] 57 LJ Ch D 498

Grant v Downs (1976) 135 CLR 674

Re Mason:Mason v Chattley [1882] 22 LJ Ch D 609

Montgomery v McPherson (No 1) (1895) 16 LR (NSW) Eq 81

Re Postlethwaite: Postlethwaite v Rickman [1887] 35 Ch D 722

Case(s) also cited:

Ajili v Dinica Popp, unreported; SCt of NSW (Windeyer J); BC9506827; 19 December 1995

Bailey v Bailey (1924) 34 CLR 560

Barry v Butlin (1838) 11 Moo PCC 480

Beim v Aldritt, unreported; SCt of QLD (Chesterman J); BC9802693; 19 June 1998

Boreham v Prince Henry Hospital (1955) 29 ALJ 179

Bull v Fulton (1942) 66 CLR 295

Dufaur v Croft (1840) 3 Moo PCC 136

Fulton v Andrew (1875) LR VII HL 448

Re Herbert (1990) 101 FLR 279

Kinleside v Harrison (1818) 2 Phill Ecc 449

Re McCaffrey [1938] SASR 403

Nock v Austin (1918) 25 CLR 519

Pates v Craig, unreported; SCt of NSW (Santow J); BC9505250; 28 August 1995

Raven v Rodgers, unreported; SCt of WA (Walsh J); Library No 8674; 20 December 1990

Robins v National Trust Co Ltd [1927] AC 515

Roos v Karpenkow, unreported; SCt of SA (Doyle CJ); BC9803311; 21 July 1998

Shama Curn Kundu v Khettromoni Dasi (1899) LR 27 Ind A 10

Re Simpson (1977) 121 Sol Jo 224

Re Stott (Deceased) [1980] 1 All ER 259

Timbury v Coffee (1941) 66 CLR 277

Tyrrell v Painton [1894] P 151

Re Wilson [1897] 23 VLR 197

Wintle v Nye [1959] 1 All ER 552

1. MASTER SANDERSON:  This application concerns a claim for privilege made by the second defendant over certain documents the plaintiff seeks to inspect.  The documents in question are as follows:

   1.A letter dated 25 March 1997 by Messrs Gibson & Gibson to Dr Tony Morgan of QE II Medical Centre.

   2.A report dated 11 December 1997 from Dr Tony Morgan to Lawton Gillon Tydde.

   3.A letter dated 6 February 1997 from Messrs Gibson & Gibson to Dr James Robinson.

   4.A report from Dr James Robinson dated 12 February 1997 to Gibson & Gibson.

2. The documents in question, together with other documents, have been delivered to the Court pursuant to a subpoena issued with leave.  The second defendant says that the documents in question are privileged and should not be made available for inspection.  The grounds on which privilege are claimed are so‑called litigation privilege.  That is to say, it is claimed that the documents were brought into existence for the sole purpose of litigation between the parties:  see Grant v Downs (1976) 135 CLR 674. To understand the nature of the attack on this claim for privilege, it is necessary to say something about the action as a whole. The plaintiff is the nephew of Alfred Clay who died on 24 January 1995. On 16 March 1995 probate of the deceased's will dated 25 July 1987 and a codicil dated 30 November 1988 was granted to the defendants, the executors named in the will. The plaintiff is a legatee under the will and the codicil. The codicil reduced the entitlement the plaintiff would have received under the will if it stood alone. On 10 December 1996 the plaintiff issued proceedings alleging that, as at the date of execution of the codicil, the deceased was not of sound mind, memory and understanding.

3. The letters which were written to Dr Morgan and Dr Robinson were written by solicitors then acting for the second defendant.  Both letters refer to the second defendant and state that the letters are written on behalf of the second defendant in her capacity as an executor of the estate.  It is clear that both the letters and the reports which resulted from the letters were brought into existence for the sole purpose of the litigation.  The plaintiff does not dispute this fact.  But what he says is that, as he is a beneficiary under both the will and the codicil, it is not open to the second defendant to claim privilege.  He says he is in the same position as a beneficiary and that a trustee cannot claim privilege against his cestui que trust.  He says that the documents must be made available for inspection.

4. There appears to be no Australian authority directly on point.  The only decisions that I have been able to locate which touch upon this question are 19th Century English decisions.  The first of these decisions is In Re Mason:  Mason v Chattley [1882] 22 LJ Ch D 609.  This case concerned an action brought by beneficiaries under a will against one of the trustees of the will and the executors of the other trustee (who was dead), alleging a breach of trust.  The surviving trustee was required to make an affidavit of documents in his possession.  In this affidavit the trustee objected to producing some letters and copies of letters which had passed between him and his co‑trustee and their solicitors in relation to matters in question in the action before the commencement of litigation.  Fry J, in a judgment which runs to 8 lines, rejected the claim for privilege.  It is not entirely clear in the report the basis upon which he did so.  However, it appears that the fact the documents were produced before the litigation was commenced was decisive.  It may well be that the ratio of the case is that the documents were not produced for the sole purpose of litigation.  The decision does not support the contention that privilege cannot be claimed by an executor against a beneficiary.

5. Next, there is the decision of In Re Postlethwaite: Postlethwaite v Rickman [1887] 35 Ch D 722. The facts of this case were as follows. Rickman and Tourle were the trustees of the will of William Postlethwaite (deceased). Joseph Postlethwaite was beneficially interested in the proceeds of the sale of the testator's residuary real and personal estate. Joseph Postlethwaite was dead and the plaintiff's were his three children entitled to his interest under the will of William Postlethwaite. The statement of claim alleged that a portion of the testator's estate had been sold to a third party acting as a trustee for the executor, Rickman. It was alleged in the statement of claim that the third party was introduced for the purpose of concealing from Joseph Postlethwaite and others interested in the estate of the deceased that Rickman was the real purchaser. Tourle was a solicitor and he had acted as solicitor for himself and his co‑trustee in relation to the estate. It was alleged in the statement of claim that Rickman had made large profits from selling the trust property he acquired from the estate. Rickman's executors, as defendant in the proceedings (Rickman being at the date of the hearing deceased), alleged that the sale to the third party was made bona fide.  The affidavit of documents claimed privilege for certain letters written by Tourle to Rickman, it being claimed that there was a solicitor/client relationship between Tourle and Rickman and the letters were privileged.  It can be seen immediately that the case did not deal with litigation privilege but with advice privilege.  Nonetheless, that does not alter the principles which were considered by the court.

6. North J ordered production of the documents.  He did so on three grounds.  Only two of these grounds are relevant for present purposes, the other being particular to the facts of the decision.  He expressed these in the following terms (at 724 ‑ 726):

   "In the first place, looking at the case made by the statement of claim … I think that when a scheme is devised by two out of three trustees that one of the two shall purchase part of the trust estate in the name of a third party, and that this shall be concealed from the third trustee, so that cestuis que trust may know nothing about it, no professional privilege can avail to protect from production any correspondence relating to such a transaction as that.  …

   But, in the second place, Rickman and Tourle were acting together in relation to the trust estate.  Tourle was himself one of the trustees, and he was the solicitor of all the trustees, and he also, in some totally independent matters, acted as Rickman's solicitor.  In my opinion it is not open to trustees to act together in such a way - the one acting as professional adviser of the other - as to close the mouth of either of them in regard to matters relevant to the trust.  If they do so act, they must take the consequences of that which they had done not being treated as privileged.  …

7. It can be seen then that this decision was based on two broad principles.  First, where there is an allegation of fraud, the allegation involving the parties between whom the correspondence passed, then no privilege can attach to these documents.  That principle is uncontroversial and has long been accepted:  see Follett v Jefferyes [1850] 61 ER 1; Montgomery v McPherson (No 1) (1895) 16 LR (NSW) Eq 81 at 84; AG (NT) v  Kearney (1985) 158 CLR 500. Secondly, the facts in the case seem to lead to the conclusion that there is the fact that Tourle was solicitor both for the trustee and Rickman and for the estate. In the circumstances, then, no privilege arises as between the respective clients. This is perhaps an early manifestation of what has come to be known as common interest privilege. Of course common interest privilege is generally invoked in a different way - for example, two persons having taken advice from the same solicitor, one proceeding with an action and the other not. Both are entitled to claim privilege. But it also follows that parties engaging a common solicitor cannot maintain privilege one from the other. That, I think, is the basis upon which the Postlethwaite decision is decided.

8. The third case of relevance is Gouraud v The Edison Gower Bell Telephone Company of Europe Ltd [1888] 57 LJ Ch D 498.  This case concerned an action by shareholders against the company.  The plaintiff obtained an order against the defendant for discovery of documents.  The defendant refused to produce certain documents on the ground that they were confidential communications between the company and its solicitors for the purpose of obtaining legal advice in connection with the subject matter of the action.  Lord Justice Chitty put the position as follows (at 499 ‑ 500):

   " … on the general principle that obtains in partnership actions, and also in actions by a cestui que trust against a trustee - namely, that a party cannot resist production of documents which have been obtained by means of payment from the moneys belonging to the party applying for their production.  …  Of course, if the plaintiff's bona fides were in question, and the object of the inspection were to trump up a case, the Court might, in the exercise of its discretion, refuse inspection."

9. It is apparent, then, that the ratio of this case is that a trustee cannot refuse inspection of a document that is procured at the expense of the trust.  The rationale for that decision is not difficult to understand.  Apart from anything else, the cestui que trust must be beneficially entitled to property in the document obtained at the trust's expense.  To then refuse inspection of the document to the beneficiary would be manifestly unfair.

10. What I think these three cases indicate is that there is no general principle that a document obtained by a trustee when there is litigation as between the trustee and beneficiary must necessarily be discoverable.  A trustee who is sued for a breach of trust by a beneficiary and who seeks legal advice in relation to the proceedings could not be forced to disclose that advice.  There may be circumstances where privilege would not apply and the three English cases I have referred to each provide good examples of such situations.  But none of them is directly relevant to the facts in the present case.

11. The second defendant wrote to each of the medical practitioners in her capacity as executor of the estate.  She is executor of the estate, pursuant to a grant of probate which remains in full force and effect unless and until it is set aside in the present proceedings.  The proceedings are brought against her in her capacity as an executor.  She is entitled to take legal advice and to do all things necessary for trial and it seems to me that, in the course of fulfilling what is after all her duty, documents are likely to be brought into existence which attract privilege.  It does not seem to me to follow that simply because the second defendant is an executor of the estate and the plaintiff is a beneficiary under the estate, all advice she receives and all documents produced solely for the purpose of litigation must be made available for inspection.  I accept that it is the responsibility of the executor to deal fairly with all beneficiaries.  But this requirement of fair dealing undoubtedly requires that the executor take legal advice.  It also seems to me to require that, in line with general principles, the advice should be privileged from production and that general litigation privilege should apply.

12. For these reasons, I would uphold the claim for privilege and I would not order that the documents in question be made available for inspection.