In Burgess v Monk [2016] NZHC 527, the New Zealand High Court has held that the principle that, in matters relating to the administration of a trust there can be no legal advice privilege as between trustee and beneficiary, also applies in the case of a residuary beneficiary under an unadministered estate.

Background

Mr Burgess was the residuary beneficiary of his mother's estate. The estate contained a farm, which had been the family farm and which Mr Burgess had spent his life working on. Although Mr Burgess was left a 60% interest in his mother's estate, there was no obligation to transfer the farm to him, and the executors instead chose to sell the farm.

Mr Burgess believed that in selling the farm the executors/trustees had breached their fiduciary duties and had exercised bias in favour of the other residuary beneficiary (his brother). It appears that he commenced proceedings for breach of duty. It seems that in the course of those proceedings (although this is not expressly stated in the judgment) he sought an order for the discovery (disclosure) of a number of the documents in relation to the administration of the estate. Specifically, he sought disclosure of documents giving legal advice to the executors in relation to dealings with the estate. The principal issue before the Court was whether Mr Burgess should have access to the documents providing legal advice, in his capacity as a residuary beneficiary of the estate.

General rule: privilege as between trustee and beneficiary of an express trust

The Court noted the general rule in relation to the trustee/beneficiary relationship, as established through case law (and described as being "fairly settled"). This rule provides that the privilege attaching to any legal advice obtained by the trustees in relation to the administration of that trust belongs to the "trust". (This is an interesting concept given a trust is not an entity, and is really a shorthand to describe the next sentence.) Therefore, trustees cannot assert legal advice privilege to protect themselves and prevent beneficiaries from accessing the documents. Privilege can properly only be asserted by the trustees where the dominant purpose of obtaining advice in relation to a dispute with a beneficiary, in which case litigation privilege will usually be available to the trustee against that beneficiary.

Privilege as between executor and beneficiary

The Court was then required to consider whether the same principles applied in relation to a residuary beneficiary under an unadministered estate. In a 2010 case (Re Maguire (deceased) [2010] 2 NZLR 845), a New Zealand court had held that the Court did not have an inherent jurisdiction to supervise unadministered estates. The consequence of this was that the principles in relation to trusts as regards beneficiaries' rights to information did not apply to unadministered estates. However, the judge did note that if proceedings had been commenced, then discovery would need to be provided.

Re Maguire does not appear to have dealt with the express question of privilege in the case of unadministered estates. In Burgess, the Court, apparently heavily influenced by a passage in Lewin on Trusts, as well as comments of the Canadian Court of Appeal in Attorney-General of Ontario v Stavro [1994] 119 DLR (4th) 750, held that the ordinary rules of legal privilege as between trustee and beneficiary should also apply as between executor and beneficiary in relation to an unadministered estate.

The New Zealand Court made this finding on the basis that if the executors of an unadministered estate could assert legal advice privilege and withhold legal documents from a beneficiary until the administration was complete, this would create an unequitable state of affairs. The beneficiary could not see certain documents relating to the estate's administration until the assets had already been distributed, by which time it may be too late for the beneficiary to challenge the executors' decision. In summary, the view of the Court in relation to this issue was that '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'.

Litigation privilege

The executors also sought to rely upon an argument that they had obtained the advice against the backdrop of a belief that Mr Burgess would take legal action against them. Thus, they asserted litigation privilege. The Court rejected this on the basis that whilst the trustees would have been aware of the risk of litigation and this would have "sharpened their understanding of their duties", they were not receiving the advice to prepare a defence.

Comment

This decision seems a sensible one which avoids an artificial distinction which could otherwise arise between unadministered estates and other trusts. Courts in various jurisdictions have consistently held that where a trustee obtains legal advice on the administration of a trust or estate, that information is for the benefit of the person or persons who ultimately stand to benefit (i.e. the beneficiaries). Any privilege in documents recording that information cannot be asserted against the beneficiaries.

In relation to litigation privilege, the Court has adopted what looks to be a very narrow interpretation of the availability of litigation privilege based upon the particular facts. However, it is a cautionary reminder to trustees that they should not assume legal advice they receive will be protected by litigation privilege simply because there is an unhappy and potentially litigious beneficiary complaining about their proposed actions.