Easton v New Zealand Guardian Trust Company Ltd

[2021] NZHC 519

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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 519

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 February 2021

Appearances:

E S Dalzell and D J S Parker for the Plaintiff/Applicant

J B Orpin-Dowell and E K Bain for the Defendants/Respondents

Judgment:

16 March 2021

JUDGMENT OF COOKE J

(Privilege claims)

[1]    By application dated 20 November 2020 the plaintiff applies for orders under r 8.25 of the High Court Rules 2016 that documents claimed as privileged in the defendants list of documents are not privileged for production and ought to be produced.

EASTON v THE NEW ZEALAND GUARDIAN TRUST COMPANY LIMITED [2021] NZHC 519 [16 March 2021]

[2]    The underlying proceedings involve a dispute between the three beneficiaries of the Motua Trust (the Trust) which holds the assets from their parents’ estate. The first and third defendants have held the position of trustee of the Trust. The plaintiff is one of the three beneficiaries, and his two sisters are the other beneficiaries.

[3]    The primary asset of the Trust is farmland used for cropping. Very broadly under their parents’ wills the assets were to be divided equitably between the three siblings as beneficiaries of the Trust, but in accordance with the expressed wishes of their parents, including in a memorandum of wishes. The trustees were told that the assets of the Trust should not be distributed prior to 10 years following the death of the last of them, and that “we are permitting our son sufficient time to organise his affairs to hopefully put him in a position where he may be able to purchase our farm properties from the Trust”. That did not occur. Disputes emerged in relation to whether the plaintiff should be obliged to pay full market price, and as a consequence the trustees made a decision to sell to a third party. The plaintiff had also taken a leasehold interest in the land in the meantime.

[4]    In the proceedings the plaintiff claims breach of trust, estoppel, a review of the proposed actions of the trustees, and relief for oppressive unfairly discriminatory or unfairly prejudicial conduct under s 164 of the Companies Act 1983 in relation to the second defendant in which he is a shareholder.

[5]    In the list of documents the defendants have claimed both legal advice privilege under s 54 of the Evidence Act 2006, and litigation privilege under s 56. The plaintiff challenges the claim for privilege in relation to such documents. The plaintiff’s essential point is that a trustee of a trust cannot claim legal professional privilege in relation to advice obtained by the trustee pursuant to trust affairs, and that the claim for litigation privilege is an artificial claim of that privilege in an attempt to withhold documents previously said to be covered by legal professional privilege.

The position of the parties

[6]    Mr Dalzell for the plaintiff relied on a line of New Zealand authorities for the proposition that a trustee is not able to claim privilege against beneficiaries in relation to legal advice obtained in the administration of the trust. He accepted that when

proceedings were in contemplation or had been filed a trustee would be entitled to claim litigation privilege. But a trustee could not claim legal professional privilege. The line of cases adopting this approach begins with Hall v Guardian Trust Executors Company of New Zealand1 and was most recently followed by Brewer J in Burgess v Monk.2 In Caldwell v Harper Penlington J described the principles in the following way:3

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. While the categories of “trust documents” have never been comprehensibly defined, Salmon LJ in Re Londonderry’s Settlement [1965] Ch 918; [1964] 3 All ER 855 (CA) at p 938; p 863E stated that trust documents do have certain characteristics in common, namely: (i) they are documents in the possession of the trustees as trustees; (ii) they contain information about the trust which the beneficiaries are entitled to know; and (iii) the beneficiaries have a proprietary interest in the documents and accordingly are entitled to see them.

A cestui que trust has an interest in the due administration of the trust. If a trustee has obtained legal advice for the purpose of opinion, the documents recording that advice would be trust documents. The communications between the legal adviser and the trustee would not be privileged. A cestui que trust would have the right to know what the communications were. He would be entitled to know what advice had been tendered if that relates to the guidance of the trustee in the execution of the trusts vested in him. As Williams J said in Grisdell v Reid (1888) 7 NZLR 129, at p 132:

“The plaintiff, therefore, as cestui que trust has a perfect right, if the trustee seeks advice with regard to the estate, to know what statement of fact the trustee put before counsel, and what advice counsel gave.”

[7]    Mr Dalzell accepted that legal professional privilege could be claimed if the advice related to a dispute with a beneficiary acting in a different capacity, such as the builder who happened also to be a beneficiary in Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd.4 But he argued that that exception could not apply here because the plaintiff was not dealing with the Trust in a separate capacity. His position as a lessee and potential purchaser was as a beneficiary. So this exception did not apply.

1      Hall v Guardian Trust Executors Company of New Zealand [1939] NZLR 993.

2      Burgess v Monk [2016] NZHC 527; [2016] NZAR 438 at [20]–[21].

3      Caldwell v Harper (1994) 7 PRNZ 521 at 525-526.

4      Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd [2011] VSC 477.

[8]    For the defendant Mr Orpin-Dowell contended in his written submissions that a trustee could claim legal professional privilege in circumstances where there was a dispute with the beneficiary such that the beneficiary and the trust no longer had a joint interest, and that was particularly so when the beneficiary was acting in another capacity. He argued that this was evident from Dura, and that the relevant principles were outlined by the Supreme Court of Western Australia in Schreuder v Murray.5

[9]    In oral submissions he further argued that there had been significant developments in the law of privilege, and in the law in relation to beneficiaries entitlement to documents. He argued that litigation privilege was ultimately a further aspect of legal professional privilege rather than a separate category, and that the trustee should be able to retain confidential legal advice when there was anticipated litigation with the beneficiary.6 Once litigation was in contemplation a trustee should be able to claim both aspects of the privilege — legal professional privilege, and litigation privilege.

Assessment

[10]   Counsel for the parties cited a number of authorities from the United Kingdom, Australia and New Zealand. Summaries from leading texts were also provided. Having considered these sources, however, it seems to me that there have been different lines of analysis, and that there is not uniformity in terms of the principles to be applied, or the underlying rationale. In those circumstances it is appropriate to consider the position as a matter of first principle.

[11]   Ultimately the dispute turns on a contest between two important rights. The first is the right to seek and receive legal advice on a confidential basis, and the second is the right of beneficiaries to have access to trust information.

[12]   Legal professional privilege is regarded as a basic right. Some describe it as a fundamental human right.7 It is not included within the rights articulated in the New

5      Schreuder v Murray [2009] WAS CA 145, (2009) 260 ALR 139 at [94].

6      Bankim Thanki The Law of Privilege (3rd ed, Oxford University Press, Oxford, 2018) at [1.09]– [1.12]. [Thanki].

7      See Regina (Morgan Greenfell & Co Ltd) v Special Commissioner of Income Tax [2002] UKHL 21; [2003] 1 AC 563 at [7] per Lord Hoffman.

Zealand Bill of Rights Act 1990 other than for persons detained or charged, but as that Act recognises there are other fundamental rights.8 There is no doubt that the right to receive confidential legal advice is an important one. It is associated with the rule of law, and the right of access to the Courts.9 As such it is a basic right that should be respected.

[13]   The right of a beneficiary to trust information is also an important right. The law in this area has developed. The principles in relation to access to trust information have recently been reformulated in New Zealand in the Trusts Act 2019. This was a comprehensive re-statement of the law of trusts following reports from the Law Commission.10 The new Act did not categorise the beneficiary’s right to information as an absolute right. Rather there is a presumption that information should be provided under s 52 unless the trustee reasonably considers the information should not be provided having regard to the considerations in s 53. Amongst the considerations listed are the effects on the trustee, other beneficiaries and third parties,11 and in the case of a family trust the effect of giving information on relationships within the family and “the relationship between the trustees and some or all of the beneficiaries to the detriment of the beneficiaries as a whole.”12

[14]   Mr Dalzell rightly makes the point that these provisions do not regulate the present position as what is involved is an obligation to give discovery in litigation, not an application of information principles. But it is significant that the right to receive information is qualified by such considerations in the Trusts Act. It is also significant that the Act has effectively codified the mandatory duties that trustees are to act for the benefit of the beneficiaries in accordance with the terms of the trust, and/or to advance the purpose of the trust.13 So the primary duty is to act in the best interests of the trust. Amongst the default duties — the duties that can be modified by the trust deed — is a duty to “act impartially in relation to the beneficiaries” and “not be

8      See New Zealand Bill of Rights Act 1990, s 28.

9      See B v Auckland District Law Society [2004] 1 NZLR 326 at (PC) [37]-[45]; Bain v Minister of Justice [2013] NZHC 2123, (2013) 21 PRNZ at [61]-[62].

10     See Law Commission Review of the Law of Trusts: A Trusts Act For New Zealand (NZLCR 130, 2013).

11     Trusts Act 2019, s 53(g).

12     Section s 53(h).

13     Section s 26.

unfairly partial to one beneficiary or group of beneficiaries to the detriment of the others.”14 It seems to me that the articulation of these underlying principles, which were intended to clarify and modernise the existing law, assist in identifying the relevant principles that should be applied in understanding the scope of a trustee’s ability to claim privilege over documents in relation to a beneficiary.

[15]   These provisions recognise that the concept of property that influenced Penlington J in Caldwell v Harper is no longer applied.15 It does not provide a conceptual answer to the present issue. A trustee is able to claim litigation privilege as against a beneficiary who sues irrespective of property concepts. The trustee would be obliged to defend the proceedings if he or she regarded that as in the best interests of the other beneficiaries, and the trust as a whole. When doing so the documents prepared for the dominant purpose of that litigation could not be withheld from the beneficiaries for whom the trustee was so acting. So they would still be trust documents in that sense. The justification for withholding that information from the litigating beneficiary is to be found elsewhere.

[16]   There have also been relevant developments in relation to the law of privilege. As Mr Orpin-Dowell submitted there is now a clearer understanding of the nature of legal professional privilege. He referred to the following passage of Thanki:16

1.09 A single privilege It can now authoritatively be stated that legal professional privilege is a single integral privilege whose subheads are legal advice privilege and litigation privilege.

1.10      Two sub-heads The proper classification of claims to legal professional privilege is therefore under the two sub-heads of legal advice privilege and litigation privilege. Like most shorthand terms these expressions are apt to mislead. The distinction is not between communications relating to litigation on the one hand and communications for the purposes of other types of legal advice on the other. As is clear from the decisions of the House of Lords in Waugh v British Railways Board, Re L, and Three Rivers 6, the relevant distinction is between:

·     Legal advice privilege – communications between lawyer and client for the purpose of giving or receiving legal advice, in both the litigation and the non-litigation context.

14     Section s 35(1).

15     Caldwell v Harper, above n 3.

16     Thanki, above n 6. Footnotes omitted.

·     Litigation privilege – communications between a client or his lawyer and third parties for the purposes of litigation.

1.11      The former are broadly privileged in all circumstances, whether or not litigation is contemplated or in progress: such communications are the subject matter of ‘legal advice privilege’ properly called and include; but are not confined to, communications between lawyer and client during the course of litigation. The latter are privileged only if litigation is in progress or in contemplation: such communications with third parties are the subject matter of ‘litigation privilege’ properly called. Despite the common misperception that litigation privilege covers all communications once litigation is in contemplation, litigation privilege has no application to communications between lawyer and client: these will always fall within the realm of legal advice privilege.

[17]   I agree that this passage records the correct position, notwithstanding the fact that legal professional privilege is categorised into three separate sections of the Evidence Act 2006.17 It follows that the proposition that a trustee is able to claim litigation privilege, but not legal advice privilege when proceedings brought by the beneficiary are in contemplation is not conceptually coherent. Litigation privilege merely extends the reach of what can be withheld to cover third party communications. Advice from the trust’s solicitor might not be created for the dominant purposes of the litigation. It might be for the purpose of providing advice on what the trustees should do in light of the complaints made by the litigating beneficiary. But both categories are privileged.

[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

17     See Evidence Act 2006, ss 54, 55, and 56.

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.18 The relevant division of interest occurs when adversarial litigation is contemplated.

[19]   This point may also explain the other recognised exception to what has been treated as the rule. I accept Mr Dalzell’s submission that the exception relating to advice taken in relation to a dispute with a beneficiary in a separate capacity does not apply here. The plaintiff’s dispute here does not arise from a separate capacity — his role as a lessee and prospective purchaser is a role that he occupies as beneficiary. At the very least that role is inextricably interlinked with his interests as a beneficiary. But an analysis of the underlying rationale for this exception reveals that it may also reflect the true basis for the trustee’s ability to claim privilege as against a litigating beneficiary. In Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd Randall AsJ said:19

16 … Another way of considering the problem is to ask the question “Did the parties have a common interest in the advice or the representation?” It is axiomatic that the answer must be no. At all material times the first defendant was represented by either Gadens Lawyers or its current solicitors. An explanation of why two firms of solicitors were used at varying times was set out in the affidavit material. At all material times, the plaintiff had engaged its own solicitors with respect to the disputes or anticipated disputes. The plaintiff’s solicitors communicated with those engaged by the first defendant. The lack of common interest could not be more clearly illustrated than by the separate retainers.

[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

18     Tuuta v Kamo [2019] NZHC 3026 at [46].

19     Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd, [2011] VSC 406. See also decision of the Supreme Court, above n 4 at [30].

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.

[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.

[23]   Not all litigation will necessarily engage a right to claim privilege as against a beneficiary who is suing. Some litigation may not be adversarial and the trustee’s duty of impartiality may still control the circumstance. An application for directions as a consequence of a dispute between beneficiaries may be such a situation. But when the point is reached where adversarial litigation is in prospect such that litigation privilege may be claimed, it seems to me that legal professional privilege may also be claimed.

[24]   It follows from the above analysis that I do not need to go on to address the further question of whether the defendant’s claim for litigation privilege over some of the challenged documents was justified. As I understand Mr Dalzell’s argument was that the litigation privilege claim was only made when it was appreciated that the legal

professional privilege claim might not be available. The argument was that, whilst the documents might involve advice from solicitors, they were not prepared with the requisite dominant purpose of the litigation. Given my finding that the trustees can claim legal professional privilege, I understand that the issue no longer arises.

[25]For these reasons the plaintiff’s application is dismissed.

Cooke J

Solicitors:

Parker & Associates, Wellington for the Plaintiff/Applicant

J B Orpin-Dowell, Wellington for the Defendants/Respondents