Burgess v Monk
[2016] NZHC 527
•24 March 2016
IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY
CIV-2013-463-87 [2016] NZHC 527
BETWEEN WARWICK JAMES BURGESS
First Plaintiff
CTE BURGESS LTD Second Plaintiff
AND
PHILLIP CHARLES MONK First Defendant
THE NEW ZEALAND GUARDIAN TRUST COMPANY LTD
Second Defendant
THE ESTATE OF ANTHONY RICHARD WESTERN
Third Defendant
ALISDAIR MORRISON Fourth Defendant
ARMER FARMS (NI) LTD Fifth Defendant
O'SULLIVAN CLEMENS SOLICITORS Sixth Defendant
GRAEME WILLIAM ELVIN AND SHARLENE DARRAUGH AS TRUSTEES OF FTB TRUST Seventh Defendant
TIHOI HOLDINGS LTD Eighth Defendant
Hearing: 10 March 2016 Counsel:
D G Chesterman for Plaintiffs
R J Latton for First, Second, Fourth and Sixth Defendants
C T Walker for Fifth Defendant
C K Lyon for Third Defendant (abiding decision)Judgment:
24 March 2016
BURGESS v MONK [2016] NZHC 527 [24 March 2016]
JUDGMENT OF BREWER J
This judgment was delivered by me on 24 March 2016 at 11:30 am pursuant to Rule 11.5 High Court Rules.
Registrar/Deputy Registrar
Solicitors: Bell & Graham (Matamata) for Plaintiffs
Kennedys (Auckland) for First, Second, Fourth and Sixth Defendants
Gilbert Walker (Auckland) for Fifth Defendant
C K Lyon (Auckland) for Third Defendant
Introduction
[1] The plaintiffs apply for particular discovery against the first, second, fourth and sixth defendants. Over the course of the hearing, counsel, professionally and responsibly, were able to reach broad agreement on much of the material in contention. This judgment decides the outstanding issues.1
Background
[2] The first plaintiff, Mr Burgess, spent his life working on the family farm. He always thought it would eventually become his. When his father died, the farm was left wholly to his mother. His mother died some 27 years later. In the period between the death of his father and the death of his mother, a half interest in the farm was held for his mother on a bare trust by trustees.
[3] In her final will, his mother left Mr Burgess 60 per cent of the residual estate and his brother the remaining 40 per cent. The will conferred on her executors and trustees complete discretion as to how to effect this division. As a result, the executors and trustees were under no obligation, by way of the will, to transfer title of the farm to Mr Burgess.
[4] After his mother’s death, the executors and trustees of her estate sold the farm to the fifth defendant. Mr Burgess contends that the trustees breached fiduciary duties to him in the decisions they made which resulted in the farm being sold to the fifth defendant.
The discovery dispute
[5] Mr Burgess wants the defendants to discover to him all documents relating to their dealings with the estate of his mother which are relevant to the proceeding. This includes, crucially, their requests for legal advice and the advice that they received. The defendants respond that Mr Burgess is entitled to the discovery that any litigant may achieve under the High Court Rules. However, the communications
between the trustees and the estate’s lawyer are privileged. Especially since the
1 Burgess & Anor v Monk & Ors Minute (No.2), 10 March 2016.
trustees were aware that Mr Burgess would very likely issue proceedings against them if he did not get the farm on terms acceptable to him. Their dealings with their lawyers were influenced by this knowledge. Mr Burgess’s case is that he is entitled to the discovery because privilege does not apply to him:
(a) He is a residuary beneficiary of his mother’s estate; and
(b)He claims to be a beneficiary also by way of constructive or precatory trust.
Discussion
Issues
[6] The issues I have to consider are:
(a) Is Mr Burgess entitled to the discovery he seeks by reason of his status as a residuary beneficiary?
(b)If not, is he entitled to the discovery he seeks by reason of his claim to be a beneficiary by way of constructive or precatory trust?
Discovery due a residuary beneficiary
[7] Discovery in civil proceedings is aimed at ensuring that the parties have before trial all information relevant to the issues between them. There should be no surprises. Each party, at an early stage, should be able to assess the strengths and weaknesses of the respective cases. A party is not entitled to keep secret documents which might be adverse to its case. If litigation is a game, then it is played with all the cards spread face up on the table.
[8] Accordingly, if a party seeks particular discovery (as permitted by r 8.19), the
question should be “why not?” rather than “why?” The answer given to the “why
not?” question in this application is that the class of documents sought are subject to a privilege of non-disclosure attaching to communications with legal advisors:2
53 Effect and protection of privilege
(1) A person who has a privilege conferred by any of sections 54 to 59 in respect of a communication or any information has the right to refuse to disclose in a proceeding—
(a) the communication; and
(b) the information, including any information contained in the communication; and
(c) any opinion formed by a person that is based on the communication or information.
…
54 Privilege for communications with legal advisers
(1) A person who obtains professional legal services from a legal adviser has a privilege in respect of any communication between the person and the legal adviser if the communication was—
(a) intended to be confidential; and
(b) made in the course of and for the purpose of—
(i) the person obtaining professional legal services from the legal adviser; or
(ii) the legal adviser giving such services to the person.
…
[9] It is well established, however, that if there is a claim for breach of fiduciary duty, the impugned trustees cannot assert legal privilege to protect themselves.3 The privilege belongs to the trust. As Lord Justice Harman put it in In Re Londonderry’s Settlement:4
The case and opinion were, of course, trust papers, having come into existence ante litem motam. Counsel was advising the trustees as to their rights and duties and every beneficiary must be entitled to see advice of that
2 Evidence Act 2006, ss 53 and 54.
3 Devaynes v Robinson (1855) 20 Beav. 42; Wynne v Humberston (1858) 27 Beav. 421; Talbot v
Marshfield (1865) 2 Dr. & Sm. 549, as explained in In Re Londonderry’s Settlement [1965] Ch.
918 at 931-932, CA; Re Mason (1883) 22 Ch.d. 609; Schreuder v Murray (No. 2) [2009] WASCA 145; (2009) 260 ALR 139; Trustee 1 v Att.-Gen. [2014] (CA Bda 3 Civ at [23], [29], [36]).
4 At 932.
sort. It is paid for out of the trust money and is the property of the beneficiaries.
[10] I note that the proprietary theory referred to in that passage is no longer the jurisdictional basis upon which beneficiaries are granted access to trust documents. The jurisdiction arises from the Court’s inherent jurisdiction to supervise the administration of trusts. Beneficiaries have a right to disclosure to ensure that trustees are properly carrying out their duties and accounting to those beneficiaries.5
The change in jurisdictional basis, however, does not disturb the principle that the
privilege is held for the benefit of the beneficiaries rather than for the personal benefit of the trustees. As a result, legal privilege is not an answer to a beneficiary’s demand for disclosure.
[11] This does not mean that beneficiaries have a right to discovery of all legal advice sought and obtained by trustees. If trustees are being sued by beneficiaries, then litigation privilege applies. Trustees are not liable to disclose legal advice obtained for the purpose of their defence. They are entitled to assert privilege in the usual way and the beneficiaries’ rights to disclosure under trust law make no difference. As Penlington J put it in Re Harper:6
As I have said earlier in Hall v Guardian Trust and Executors Co of NZ Ltd, Callan J affirmed the well-established principle that as between a trustee and a cestui que trust, privilege for legal professional documents cannot be claimed by the trustee except in respect of communications and documents brought into existence by the trustee for the purpose of litigation against him by the cestui que trust. The former are trust documents. The latter are not.
[12] When deciding whether a document qualifies for litigation privilege the
Court should have regard to the dominant purpose of the communication:7
[E]ven although litigation against the trustees was contemplated the question was whether the dominant purpose of the solicitor who created the documents in issue was to enable him to advise the trustees in relation to the contemplated litigation.
5 Erceg v Erceg [2016] NZCA 7 at [26]; Schmidt v Rosewood Trust Ltd [2003] UKPC 26, [2003] 2
AC 709 at [36], [51] and [66]; Re Maguire (deceased) HC Auckland CIV-2010-404-1418,
28 May 2010, Asher J at [27].
6 Re Harper(deceased) (1994) 7 PRNZ 521, 525.
7 Re Harper(deceased) at 526.
[13] Thus, the principles in relation to a beneficiary’s claim for legal advice appear fairly settled in the context of a trustee-beneficiary relationship. However, whether these principles apply in relation to a residuary beneficiary while an estate is still in the course of being administered is more contentious. In Re Maguire,8
Asher J did not consider the principles to apply in the same way to a residuary beneficiary of an unadministered estate. His Honour did not consider the Court’s inherent jurisdiction to supervise trusts to be invoked until the estate had been administered. I reproduce the paragraphs of Re Maguire which have relevance to the present case:
[20] As this analysis shows, residuary legatees such as the Rauchs, have no interest in the nature of a property interest, whether legal or equitable, in the unadministered estate. The corpus of the estate and any income from it was the property of the executors until their administration role was complete. Until the will maker’s debts are paid and the specific legacies met, it is not possible to identify the assets to which beneficiaries are entitled. And until that point, there is no need to distinguish between the legal and equitable estate. That is not to say that the residuary legatees are without rights in relation to the administration of the estate. The executors owed the residuary legatees a fiduciary duty to carry out their administration tasks honestly and diligently, and the residuary beneficiaries would have remedies against the executors should they fail to carry out those duties. Thus, in New Zealand it has been recognised that there is a duty of even handedness owed by executors to beneficiaries: Irvine v Public Trustee.
[21] However, the remedies arise from causes of action for breach of fiduciary duty, and not because the residuary beneficiaries have a proprietary interest in the unadministered estate. These theoretical choses in action that the Rauchs have as residuary legatees against the executors for any breaches of fiduciary duty do not give them any right to invoke the court’s supervisory jurisdiction in relation to trustees that will arise once the administration of the estate is completed and the executors become trustees. While s 2 of the Trustee Act 1956 defines a trustee as including the office of an administrator, as Commissioner of Stamp Duties (Queensland) v Livingston recognises, the position of executors is different from that of trustees, even though for some purposes they may be treated as trustees. There is no express trust, and the court’s supervisory jurisdiction in relation to trusts is not invoked.
[22] Of course, such residuary beneficiaries could have a claim against the executors for breach of fiduciary duty or, indeed, a claim based on the Law Reform (Testamentary Promises) Act 1949. If they did so they might be entitled to discovery prior to the commencement of proceedings under r 8.25 of the High Court Rules. If proceedings were issued they could be entitled to discovery of the documents they now seek, if those documents were relevant to the causes of action.
8 Above n 5.
(Emphasis added and references omitted)
[14] It is Asher J’s view, therefore, that the Court’s inherent jurisdiction to supervise trusts does not arise in the case of an unadministered estate. His Honour does not say that in a case where breach of fiduciary duty is claimed that no rights of discovery exist. But I infer from [22] of Maguire that ordinary rules of legal privilege would apply. There is academic commentary and Canadian case law, however, which takes a contrary position. The learned authors of Lewin on Trusts consider residual legatees to possess broadly similar access to information rights as
those possessed by beneficiaries of an express trust:9
We consider that generally similar principles apply in relation to disclosure to beneficiaries by personal representatives of an unadministered estate as apply to disclosure by trustees to beneficiaries of a trust. Beneficiaries of an unadministered estate do not have a proprietary interest in particular assets of the estate, but since the right to seek disclosure is not founded on the existence on a proprietary interest, the focus on the absence of such an interest is liable to lead one astray. Personal representatives of an unadministered estate are trustees for many purposes, are accountable to their beneficiaries, and have a duty to their beneficiaries of due administration. The Court has jurisdiction, in administration proceedings, to supervise and where appropriate intervene in the administration of an estate. These matters are a sufficient basis, in our view, for the application of the Schmidt principles to an unadministered estate. Rights for beneficiaries of unadministered estate [sic] to seek disclosure of information in relation to the estate have been accepted in Canada, though not in New Zealand. In our view, in English law, beneficiaries of an unadministered estate have a right to seek disclosure in relation to matters concerning the estate, such as what assets are comprised in the estate and whether or not assets in which the deceased was interested were subject to a beneficial joint tenancy and so passed by survivorship, but not (save in the context of a probate action) disclosure of previous wills of the deceased since that does not relate to the will proved by the personal representatives under which the rights of the beneficiaries seeking disclosure arise.
(References omitted)
[15] Of relevance to the present case, the Court in Attorney-General of Ontario v Stavro10 expressed a clear view that legal privilege does not entitle executors to withhold legal advice that is relevant to the discharge of their duties in relation to an
unadministered estate:11
9 Lewin on Trusts (19th edition, Sweet & Maxwell, United Kingdom, 2015) at para 23-023.
10 Attorney-General of Ontario v Stavro (1994) 119 DLR (4th) 750 at 756.
11 At 757.
A property right analysis unfortunately leads one astray and to the illogical conclusion that a potential beneficiary has to wait until the completion of the administration of the estate and until there is specific property available to him or her before he or she can see information that the trustees have gathered. In a hypothetical case, it may be that in the end, the residual legatee will receive nothing because the executors or trustees have not acted in good faith or breached their fiduciary duty. It is untenable that in such circumstances, a trustee can invoke the doctrine of privilege merely because the residual legatee has received or will receive nothing under the trustee’s administration when the reason for that outcome may be the trustee’s own misconduct. The right to actual property therefore cannot be determinative of whether that individual is entitled to the information.
The Court concluded that the defendant executors could not assert a general claim of lawyer-client privilege and ordered the production of relevant communications between the solicitors and the executors.
[16] I am attracted to the reasoning advanced in Lewin on Trusts and in Stavro. In my view, the beneficiaries of an unadministered estate suing for breach of fiduciary duty have a right to seek disclosure of matters concerning the estate and its administration which are relevant to their claims. In Re Maguire, Asher J
acknowledged this was the case in relation to non-privileged material.12 In my view,
the position should be extended to include privileged material to the extent that the material relates to the executors’ discharge of fiduciary duties owed to the residuary legatee. If a document can shed light on whether the executors have acted in good faith and in accordance with their fiduciary duties then it should be disclosed. The doctrine of privilege should not stand in the way of that. Allowing the doctrine of privilege to obstruct any and all claims to legal material has the potential to create the illogicality identified in Stavro where a residuary beneficiary, to whom is owed fiduciary duties, is unable to obtain access to information which is relevant to those duties until the executor has completed the actions that may have breached the duties in the first place. The illogicality goes to inequity where, as here, the fact of litigation by a residuary beneficiary will prevent the estate being administered and thus delay the arrival of the day upon which the documents may be seen until it is too late for their contents to affect the claims against the executors who held them
back.
12 At [22].
[17] The fact that the Court’s inherent jurisdiction to supervise trusts is not invoked in the case of an unadministered estate should not be determinative against discovery claims for privileged material. When an executor obtains legal advice he or she is not obtaining legal advice in his or her personal capacity but in the capacity of a representative who must adhere to a prescribed mandate and observe fiduciary duties owed to residuary legatees. In the context of an express trust, the fact that the trustees have a duty to account to beneficiaries means the trustees cannot successfully assert the doctrine of privilege. In my view, the same justification is readily apparent in the context of an unadministered estate. This is because executors must also account to the residuary beneficiaries by virtue of their duty to carry out their administration tasks honestly and diligently.
[18] Admittedly, the contours of the fiduciary duty differ in the case of an unadministered trust because the executor is not yet mandated by the terms of an express trust. The duty is a narrower one. As Buckley J said in Re Leigh’s Will Trusts:13
[A residuary beneficiary] is entitled to a chose in action, viz. a right to require the deceased’s estate to be duly administered, whereby he can protect those rights to which he hopes to become entitled in possession in the due course of the administration of the deceased’s estate.
Thus, an executor owes a duty to administer the estate in a way that is not prejudicial to the rights that a residuary beneficiary will obtain by way of express trust when administration of the estate has been completed. One of the ways this overarching duty manifests itself is the duty of even handedness that executors owe to residuary beneficiaries.14 A related duty owed by the executor to the residuary beneficiary is
the duty to act in good faith.15
The present case
[19] Mr Burgess alleges that the executors, particularly Mr Weston, exercised bias in favour of Mr Hilton Burgess, his younger brother and the only other residuary
legatee. Thus, Mr Burgess is alleging that the executors have failed to discharge
13 Re Leigh’s Will Trusts [1970] Ch. 277, 281-282.
14 Irvine v Public Trustee [1989] 1 NZLR 67, at 70.
15 Stavro above n 10.
their duty of even handedness and, as a corollary, their duty to act in good faith. These allegations go to the core of the relevant defendants’ duties as executors of Mrs Burgess’s estate. The executors’ correspondence with legal advisers throughout the course of administration may well be relevant to these allegations. For the reasons I have given above, I do not think a claim to discovery in relation to this advice should be denied on grounds of legal privilege.
[20] Mr Latton submitted that the reason privilege was asserted and sought to be maintained was that the administration of Mrs Burgess’s estate has taken place against a belief by the executors that it was extremely likely Mr Burgess would take legal action against them. As a result, Mr Latton argues that the documents were prepared with the prospect of litigation in mind. I do not accept this argument as one of general application. The fact that the executors were alive to the risk of litigation will have sharpened their understanding of their duties. The executors were not receiving legal advice to prepare a defence. They were receiving legal advice to ensure they were administering the estate in accordance with the law. Accordingly, communications the executors had with legal advisers in relation to the discharge of their legal duties are relevant to the claims being brought by Mr Burgess.
[21] I have decided that Mr Burgess is entitled to any legal communications that are relevant to his allegations that the executors have breached their duties of even handedness and good faith in relation to the administration of the estate16 and which
are not protected by litigation privilege.17
Discovery rights from claim of constructive or precatory trust
[22] On the face of it, a person who claims to be a beneficiary of a constructive trust is asserting the sort of right which, as per Maguire, would entitle the claimant to discovery of documents which would otherwise be legally privileged. But it is not difficult to see complications where the trustees being sued are also executors of an estate and bound by the terms of a will. For example, a staged discovery might, in
some circumstances, be appropriate.
16 It is unnecessary for me to consider whether the executors waived any privilege that may have existed in the documents, an issue which I might have had to address if I had reached a different conclusion on the principal argument.
17 [11] and [12] above.
[23] I do not have to decide this point. If I did, I would apply the general principles I have discussed and order discovery of documents relevant to the causes of action pleaded. I do not believe the outcome for the defendants would be different.
Decision
[24] I find for the plaintiffs. If the parties are unable to agree as to the relevance or status of any documents, I invite them to consult the Court in accordance with r 8.25 of the High Court Rules.
[25] I am inclined to award costs on a 2B basis. If any party demurs, or if quantum is in issue, memoranda can be filed within 20 working days of the date of
this Judgment, and replies within a further five working days.
Brewer J
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