Easton v New Zealand Guardian Trust Company Limited
[2021] NZHC 1117
•18 May 2021
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2019-454-35
[2021] NZHC 1117
UNDER the Trustee Act 1956 and s 174 of the Companies Act 1993 IN THE MATTER
of the Moutoa Trust
BETWEEN
IAN CHARLES EASTON
Plaintiff/Applicant
AND
THE NEW ZEALAND GUARDIAN TRUST COMPANY LIMITED
First Defendant/First Respondent
IAN EASTON LIMITED
Second Defendant/Second Respondent
PERPETUAL TRUST LIMITED
Third Defendant/Third Respondent
Hearing: 10 – 14 May 2021 and 17 – 21 May 2021 Appearances:
D J S Parker and D A Fry for the Plaintiff/Applicant L J Taylor QC and J B Orpin-Dowell for the Defendants/Respondents
Judgment:
18 May 2021
JUDGMENT (NO 2) OF COOKE J
(Privilege and stay/adjournment applications)
[1] In these proceedings the plaintiff pursues causes of action against the trustee of a trust of which the plaintiff is one of three beneficiaries. The other two beneficiaries are the plaintiff’s sisters, and the principal trust asset was the family farms formerly owned by their parents.
EASTON v THE NEW ZEALAND GUARDIAN TRUST COMPANY LIMITED [2021] NZHC 1117 [18 May 2021]
[2] On 17 May, the Monday morning of the second week of the trial, the plaintiff made an application that certain documents that had been claimed as privileged by the defendants should be disclosed to the plaintiff as they were not, or were no longer privileged. This application followed on from my earlier judgment before trial in which I held that the defendants could claim legal professional privilege as against the plaintiff.1 The plaintiff argued that in the circumstances that had been revealed during the trial meant that legal professional privilege could not be claimed, or that it had been waived as a consequence of what had transpired at the trial.
[3] Following this argument I released a minute at the end of the day in which I indicated that I upheld the plaintiff’s application on the basis that legal professional privilege could not be claimed, and that reasons would follow, probably in the substantive judgment. On Tuesday 18 May the defendants filed an application for leave to appeal this decision to the Court of Appeal under s 56(3) of the Senior Courts Act 2016, with an effective stay of the order directing that the documents be disclosed, and that the trial be adjourned part-heard until that matter was heard and determined by the Court of Appeal.
[4]This judgment deals with both the applications.
Privilege
[5] In my earlier judgment of 16 March 2021 I addressed the question whether the defendants could claim legal professional privilege as against the plaintiff as a beneficiary. There is an established line of authority to the effect that a trustee is not able to claim legal professional privilege as against a beneficiary as the advice received by the trustee concerns trust affairs which the beneficiary is entitled to know about.2 There were, however, two recognised exceptions. The first was when litigation brought by the beneficiary is in contemplation. When that is so the trustee is entitled to claim litigation privilege. Secondly, when the trustee is dealing with the beneficiary
1 Easton v The New Zealand Guardian Trust Company Ltd [2021] NZHC 519.
2 Hall v Guardian Trust Executors Company of New Zealand [1939] NZLR 993; Burgess v Monk [2016] NZHC 527; [2016] NZAR 438 at [20]–[21]; and Caldwell v Harper (1994) 7 PRNZ 521 at 525-526.
in some different capacity (that is, other than as a beneficiary) the trustee may be entitled to claim legal professional privilege.
[6] In my judgment I held that litigation privilege and legal professional privilege were interrelated, and that there were circumstances in which a trustee would be entitled to claim legal professional privilege as well as litigation privilege as against a beneficiary when litigation by that beneficiary was in contemplation. I held:3
[18] The reason why the trustee is entitled to withhold disclosure to the beneficiary who is a prospective plaintiff is that the interests of the beneficiary, and that of the trust have diverged. They are now adversaries. They no longer have the common interest on which the privilege depends. Whilst a trustee has a duty to provide information to beneficiaries and also to treat beneficiaries impartially, the primary duty of the trustee is to act in the best interests of the trust (i.e. the beneficiaries as a whole) and to further its purposes. Once there is an adversarial relationship it becomes contrary to the best interests of the trust for the beneficiary who is suing the trust to see all the legal advice the trustee is receiving about the matters subject to the claim against the trust. The trustee cannot be obliged to litigate with a beneficiary and at the same time treat them as sharing a common interest in the management of the litigation. It was that point that led in Associate Judge Johnston to conclude that there must be a caveat on the principles of Burgess v Monk, as otherwise the proposition would be that a plaintiff would be allowed access to the privileged legal communications of the other side of its dispute.4 The relevant division of interest occurs when adversarial litigation is contemplated.
…
[20] The key point is the relationship had become one of adversaries. The fact that the plaintiff had a separate capacity to that of a beneficiary is not by itself decisive. It is relevant, but what matters is the loss of the common interest to the point that the beneficiary who wishes to sue must be able to be treated as outside the tent.
[21] The proposition that litigation privilege is available to the trustee because prospective proceedings engage the personal interest of the trustee, separate from that of the trust, is relevant but not decisive in my view. There may be proceedings against the trustees that do not engage any liability, but where the position advanced by the plaintiff beneficiary is nevertheless adverse to the trust and the remaining beneficiaries. It cannot be the case that the trustees acting in the best interests of the trust cannot obtain confidential legal advice in those circumstances. So here it cannot be the case that the trustees acting in what they apprehend to be the best interests of the Trust (and therefore the plaintiff’s sisters) can be compelled to disclose all legal advice obtained after proceedings were contemplated. That would be grossly unfair to the plaintiff’s sisters, and would be inconsistent with the best interests of the Trust as perceived by the trustees.
3 Easton v The New Zealand Guardian Trust Company Ltd, above n 1.
4 Tuuta v Kamo [2019] NZHC 3026 at [46].
[22] Normally trustees must treat all beneficiaries impartially. When advice is taken by a trustee the beneficiary normally has a legitimate interest in seeing it. A trustee will not be able to claim privilege even when there are disagreements or even disputes between beneficiaries. A trustee’s duties to act in an impartial manner as between the beneficiaries require him or her to act openly and transparently even in those difficult circumstances. But the point changes when there is litigation, or anticipated litigation that is adversarial in nature. Then the trustee must be able to act in the best interests of the trust (the beneficiaries as a whole) by seeking confidential legal advice. It may be prudent for the trustee to formally notify the potentially litigating beneficiary that in the trustee’s view that point has been reached and that the beneficiary will not be given access to the trust’s privileged material. This would be appropriate for reasons of transparency.
[7] The position that has now emerged from the evidence at trial demonstrates a materially different set of circumstances, however. It is on this basis that Mr Parker argued that relevant documents claimed as subject to legal professional privilege cannot be so claimed, even on the grounds outlined in my earlier judgment.
[8] In particular it is apparent that whilst potential litigation by the plaintiff was in contemplation at the relevant time, litigation by his two sisters was also. In making a decision to place the farms on the market for sale in December 2014, the formal decision-making document of the first defendant stated:
The trustee is now immersed in the middle of a long standing family feud between highly litigious siblings. The views held by the beneficiaries as to a fair and equitable outcome between themselves, are almost diametrically opposed, creating a situation whereby the ultimate decision of the trustee is likely to be contentious to at least one beneficiary. All beneficiaries have stated that should the trustee’s interpretation not reconcile with their own, they will seek damages against the trustee and the other beneficiaries.
[9] Whilst that is the recorded the position as at 2014, the underlying disputes still remained through to 2017. At the time of the critical transactions in October 2017 all three of the beneficiaries had separate legal representation, and depending on what decisions were ultimately made by the defendants, prospective proceedings were possible not just by the plaintiff, but also his sisters.
[10] In those circumstances it does not seem to me that the first defendant can claim privilege as against one of the beneficiaries or one side of the potential disputes. Neither is it the scenario contemplated by my earlier judgment. In that judgment I was contemplating a situation where one beneficiary was in an adversarial relationship
with the Trust, with the best interest of the Trust as a whole being perceived by the trustee to involve resisting the potential litigation brought by the dissenting beneficiary. In those circumstances I concluded that it would be unfair to the remaining beneficiaries for the trustee not to be able to obtain confidential legal advice, effectively to advance their interests.
[11] But the evidence now received at trial is that all of the beneficiaries could potentially dispute the actions taken by the trustee depending on what those actions were. This is not a situation where a trustee sought advice on the subject matter of potential litigation brought by a dissenting beneficiary against the Trust. It is a situation when the trustee was deciding upon a course of conduct when there were different views among the beneficiaries. In those circumstances the trustee’s obligation when dealing with the contentious matters is to treat the beneficiaries equally. Any legal advice received by the trustee in deciding upon the course of action cannot be withheld from the beneficiaries. The rationale for applying the exception to the general rule that beneficiaries are entitled to see the legal advice obtained by the trustees concerning trust affairs does not apply.
[12] This means that the trustee is only able to claim litigation privilege as against a beneficiary challenging the ultimate decision. Documents created for the dominant purpose of the anticipated litigation are able to be withheld. But legal advice on the decisions that the trustee is to make, and which informs the decisions by the trustee on the performance of their duties as trustee cannot be withheld from the beneficiaries.
[13] In advancing his argument, Mr Taylor QC indicated that the relevant advice had not been provided to the plaintiff’s sisters, and that it was not relevant to ask whether the defendants would be entitled to withhold the advice from the sisters on the basis of legal professional privilege. I do not accept that. The suggestion that the defendants could withhold the advice from the plaintiff’s sisters as well as the plaintiff was not part of the earlier argument, and it involves a materially different set of circumstances from the one earlier addressed.
[14] Mr Taylor also argued that the position here was that the first defendant was seeking advice in circumstances where potential proceedings against it were in
contemplation, that those potential proceedings raised its own personal liability, and that it must be able to take confidential legal advice without that being disclosed to the beneficiaries. I accept that a trustee in those circumstances may be able to seek and receive confidential legal advice directed to their own personal position. But that is not the nature of the documents in issue here. The legal advice in question is contemporaneous with the decisions being made by the trustee on the sale of the farms. It is not directed to the trustee’s personal position. It is advice on the administration of trust affairs. It is accordingly trust information. Mr Taylor argued that the trustee’s potential personal liability and the affairs of the trust were inherently interrelated such that privilege can be maintained. I do not accept that. That does not seem to me to be consistent with the line of authorities that holds that a trustee is not entitled to claim legal professional privilege as against the beneficiaries.5
[15] As to the argument concerning the suggested waiver of privilege, the principles are well settled.6 Here there has been reference to the defendant obtaining legal advice in the evidence. It was referred to both in Mr Hing’s evidence, and Mr Taylor’s cross- examination. The way in which the taking of advice was referred to might be able to be taken as implying that the advice was consistent with the course of action the trustee took. But that was never express. The authorities suggest that something more definitive is required for an implied waiver. The appropriate approach of the Court is not to draw any inference about the content of the advice. Accordingly I do not consider that there has been any implied waiver.
[16] Nevertheless for the above reasons I concluded that the plaintiff is entitled to have discovery of the documentation presently withheld on the basis of legal professional privilege.
Application for leave appeal, stay and adjournment
[17] In its application dated 18 May 2021, the defendant seeks leave to appeal the ruling referred to above pursuant to s 56(3) of the Senior Courts Act 2016 and:
5 See above n 2.
6 Evidence Act 2006, s 65. See, for example, Ophthalmological Society of New Zealand Inc v Commerce Commission [2003] 2 NZLR 145 (CA).
For timetable directions that: the Court finish hearing evidence in the proceedings; and once the evidence is heard the trial be adjourned pending the Court of Appeal’s judgment on the privilege question, with leave for the parties to recall witnesses if the High Court’s privilege ruling is upheld.
[18] Mr Taylor clarified that this was an application for a stay of the ruling as well. In other words it is an application that my order directing the documents be disclosed be stayed, that evidence only now be received without the availability of those documents, and that the trial be adjourned part-heard until the Court of Appeal has heard the appeal against my ruling. Mr Parker opposed the applications and sought directions that the plaintiff could have access to the documentation and complete the trial in as efficient a process as possible.
[19] The principles to be applied to the grant of leave to appeal interlocutory rulings are well established. The following factors are relevant:7
(a)a high threshold exists;
(b)the applicant must identify an arguable error of law or fact;
(c)the alleged error should be of general or public importance warranting determination or otherwise of sufficient importance to the applicant to outweigh the lack of general or precedential value;
(d)the circumstances must warrant incurring further delay;
(e)the ultimate question is whether the interests of justice are served by granting leave.
[20] Whilst written submissions were filed with the application, and Mr Taylor spoke to those written submissions, the key issue seem to me to be whether it is appropriate in the interests of justice to adjourn this trial part-heard to give the defendant an opportunity to appeal to the Court of Appeal.
[21] I pressed Mr Taylor on why the defendants’ position is not adequately protected by the right to appeal against any adverse substantive judgment. He indicated that once the documents were available the defendants’ fundamental right to confidential legal advice was destroyed, and that this could not be remedied by a substantive appeal. I asked Mr Taylor why the position would be any different from
7 Greendrake v District Court of New Zealand [2020] NZCA 122 at [6]; citing Finewood Upholstery Ltd v Vaughan [2017] NZHC 1679 at [9]–[14].
any other error by the trial Court on the admissibility of evidence, and why the Court of Appeal could not resolve the effect of any such error. He responded by contending that it was not ultimately material whether or how the documents might affect the substantive judgment, and that the key point was that the defendants’ fundamental right to confidential legal advice would be compromised. Indeed he indicated that he had not reviewed the documents claimed as privilege in formulating the arguments now advanced by the defendants.
[22] I see no substance to the defendants’ position. I accept that any erroneous decision requiring privileged documents to be disclosed cannot be completely remedied on appeal in terms of the point of principle referred to by Mr Taylor. But any adverse impact of any wrong admission of those documents on the ultimate decision in this case would be able to be. Appeal courts are well able to identify how, if at all, an erroneous admissibility decisions affected an ultimate judgment. The defendants have an available right of appeal to address this situation if the plaintiff’s claims were to succeed.
[23] The suggestion that this trial should be adjourned part-heard until the Court of Appeal is able to hear the interlocutory appeal is most unattractive. I recognise that there is a further hearing pencilled in for this Court early next year to deal with quantum should the plaintiff’s claims be upheld, and also to deal with the potential “distribution” issues (albeit that the Court has been advised it is likely the parties will be able to resolve the distribution issues). But the availability of that fixture does not resolve the highly undesirable concept of adjourning this trial part-heard.
[24] The only issue that has caused me disquiet is the possibility that the task involved in providing the material formerly claimed as privilege by itself may jeopardise the trial. In response to that concern Mr Parker was able to indicate that the plaintiffs only sought the documents that had been withheld as privileged between the period of 25 August to 20 October 2017, with the priority given to the period 10– 20 October. I accept that the more limited period of disclosure of the documents claimed as subject to legal professional privilege will be able to be attended to within a short period, and that this will not jeopardise completion of the trial. It was scheduled to be completed this week but if necessary it can be concluded next week.
[25] For these reasons the application for leave to appeal, and the associated applications for a stay and for an adjournment of the trial are declined.
[26] I discussed with counsel timing from here. That includes an assessment of the time required for the defendants to make documents available, and I also bear in mind Mr Taylor’s indication that the defendants may seek to ask the Court of Appeal to hear an urgent appeal from this judgment. Mr Parker agreed that the examination of other witnesses could continue for the rest of this week, and if I directed the documents to be provided by 4 pm Friday he could deal with recalling any witnesses next week, following which closing submissions could be received. That way forward would also give the defendants the opportunity to approach the Court of Appeal this week.
[27] In the circumstances I direct that the defendants provide the documents subject to this ruling in the time period specified by 4 pm Friday. Any witnesses the plaintiff wishes to recall for cross-examination after receiving those document can be recalled next week.
Cooke J
Solicitors:
Parker & Associates, Wellington for the Plaintiff/Applicant Carlile Dowling, Napier for the Defendants/Respondents
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