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Trust transparency: when should a trustee disclose legal advice to beneficiaries?

Home Insights Trust transparency: when should a trustee disclose legal advice to beneficiaries?

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Contributed by: Nathaniel Walker, Matt McMenamin and Madeline Alison

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Published on: June 01, 2021

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The Supreme Court today issued judgment on a key issue facing trustees: when must a trustee disclose legal advice to beneficiaries of a trust?[1]

Lay of the land

This issue is a subset of the broader topic of beneficiaries' rights to access trust information. The Supreme Court grappled with that topic in 2017 in Erceg v Erceg.[2] In that case, the Court held that beneficiaries have a right to disclosure to ensure that trustees are properly carrying out their duties and accounting to the beneficiaries.
 
However, when the trust documents contain legal advice, that position runs into the principle of legal professional privilege. The question becomes whether, and if so when, a beneficiary's entitlement to disclosure is limited by legal professional privilege. 
 
In the leading case on that topic, Burgess v Monk,[3] the Court held that trustees could not withhold from beneficiaries legal advice given to the trust in respect of its administration. That is because the legal privilege in that advice belongs to the trust, not the trustees. On the other hand, the trustees could withhold from beneficiaries legal advice relating to the preparation of their legal defence in a case brought against them by those beneficiaries. That material was privileged as against the beneficiaries. 

The facts and decision under appeal

In this case, one of the two beneficiaries of the Lambie Trust had sought disclosure of a wide range of trust documents. Among other things, she had requested all legal opinions and other advice obtained by the trustees for the purposes of the trust fund and funded by the trust fund, including those that might be privileged as against third parties. The trustees had refused to give over those documents on the basis that they were subject to legal advice privilege or litigation privilege (both sub-species of legal professional privilege).
 
The Court of Appeal had ordered disclosure of any legal opinions and other advice obtained by the trustees and funded by the Trust. The trustees appealed.

The Supreme Court judgment

The Supreme Court unanimously held that the trustees were obliged to disclose all legal advice funded by the Trust and received by them prior to the commencement of the present proceedings.  

Guidance for trustees

 The Supreme Court's judgment has given a series of guiding principles for trustees facing the question of disclosure of legal advice to beneficiaries in the future:  

  • The key question is whether legal advice held by trustees is information over which they can claim legal professional privilege against the beneficiary.

  • That turns on whether the beneficiary has a joint interest in the advice: legal professional privilege cannot be exercised against a person who is jointly interested in the documents (the "joint interest exception").

  • In the trust context, this joint interest exception is founded on the assumption that advice to which it applies is obtained for the benefit of the beneficiaries. This is true when the advice relates to the administration of the trust – in that situation, the trustees cannot normally rely on legal professional privilege to withhold documents.

  • However, if that assumption does not apply (eg if the advice is not being obtained for the benefit of beneficiaries), then the joint interest does not exist, and privilege can be exercised against the beneficiary. 

  • The dividing line becomes critical. Whether a joint interest exists does not depend on whether litigation is a possibility or even a likelihood at the time of taking advice. Instead, the key question is whether the legal advice was sought by the trustees for the dominant purpose of defending litigation. 

  • In deciding that question:

    • courts are to assume that trustees seeking advice in respect of contemplated litigation are looking for guidance as to the right course of action (such that the joint interest exception to privilege applies); and

    • courts can expect trustees not to seek advice about how to defend litigation without first having sought advice (again, to which the joint interest exception will apply) about the appropriate stance to take on the point at issue.

  • Generally, once a beneficiary commences litigation concerning the administration of a trust, that beneficiary is not entitled to disclosure of legal advice received by the trustees in relation to that litigation: the beneficiary and trustees no longer have a joint interest in the issue being litigated.

Trusts Act 2019

The Trusts Act 2019 (the Act), which came into force on 30 January 2021, introduced a regime of information disclosure, including a rebuttable presumption that trustees must, on request by a beneficiary, disclose trust information within a reasonable period of time.[4] 
 
The Supreme Court mentioned the Act in passing, without engaging in detail with the disclosure provisions in that Act. That said, the Court did note one difference between the rules governing disclosure under the common law and those under the new Act. The Act says that the information beneficiaries can request from trustees does not include the reasons for trustees' decisions.[5] In contrast, under the common law, it was possible that a court could have ordered the disclosure of documents bearing on discretionary decisions made by trustees. The Court noted that the significance of that difference was an issue for another day.

Case by case

As always, the question of whether a joint interest exists and, therefore, whether disclosure of legal advice is required or not will depend on the circumstances of each case. Please get in touch with one of our team if you would like to discuss how this decision may be relevant to you and your situation.

For more recent publications on Trust law, see our Trust Series here.

 
[1]     Lambie Trustee Ltd v Addleman [2021] NZSC 54.
[2]     Erceg v Erceg [2017] NZSC 28, [2017] 1 NZLR 320.
[3]     Burgess v Monk [2016] NZHC 527, [2016] NZAR 438.
[4]     Trusts Act 2019, ss 49­–55.
[5]     Trusts Act 2019, s 49(b).
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