Must trustees disclose legal advice to beneficiaries? NZ Supreme Court provides an answer
19 Oct 2021
Trusts are commonplace in New Zealand. On 30 January 2021, the new Trusts Act 2019 (the Act) came into force. Its aim is to "restate and reform New Zealand trust law".(1)
One area of the new regime that trustees will need to consider is the extent to which beneficiaries are entitled to information about the trust, including legal advice obtained by the trustees. The provision of information by trustees to beneficiaries was previously governed by common law but is now dealt with in the provisions of the new Act.(2)
The provision of information, including legal advice, was recently considered by the Supreme Court in Lambie Trustee Limited v Addleman.(3) The appeal to the Supreme Court was heard before the Trusts Act 2019 came into full effect. Nevertheless, the Court made observations on the position under the new legislation. In essence, the Court found that the beneficiaries were entitled to disclosure of legal advice obtained by a trustee and paid for with trust funds on the basis of a "joint interest exception" to legal professional privilege, which is premised on the assumption that such advice is obtained for the beneficiaries' benefit.
The case involved a dispute between two sisters, Annette Jamieson and Prudence Addleman, concerning a discretionary trust known as the "Lambie Trust". The sole trustee of this trust was Lambie Trustee Ltd, a company controlled by Jamieson. Jamieson and Addleman were both beneficiaries.
Proceedings began on 16 June 2015 when Addleman sought disclosure of a wide range of trust documents, including:
all legal opinions and other advice obtained by the trustees for the purposes of the Trust Fund and funded from the Trust Fund, including all those that might be privileged as against third parties.(4)
In the High Court,(5) Justice Woolford refused to order the disclosure of any trust documents. This outcome was primarily influenced by the Court's acceptance of the argument that the Lambie Trust was, in substance, a "sole purpose" trust for the benefit of Jamieson and had been funded with her money.
Court of Appeal
Addleman successfully appealed. The Court of Appeal,(6) on the basis of further evidence admitted in the appeal,(7) was sceptical that the Lambie Trust had been solely funded by Jamieson. The Court found that the trust could not be regarded as a "sole purpose trust" or "essentially Ms Jamieson's trust".(8) Accordingly, the Court directed Lambie Trustee Ltd to disclose certain categories of documents in its possession or power regarding the Lambie Trust, including "any legal opinions and other advice obtained by the trustees and funded by the Trust."(9)
The Supreme Court granted Lambie Trustee Ltd leave to appeal on "[w]hether the Court of Appeal was correct to reject the applicant's [Lambie Trustee Ltd's] claims of legal advice privilege and litigation privilege respectively."(10)
Lambie Trustee Ltd claimed:
- legal advice privilege in relation to advice or opinions obtained either by itself or by a former trustee on matters ranging from trust administration to advice about the trustees' discretionary powers and dealings with beneficiaries; and
- litigation privilege in connection with communications between Lambie Trustee Ltd, its legal advisers, and third parties for the dominant purpose of proceedings.(11)
General principles as to disclosure by trustees to beneficiaries
The Court began its legal analysis by clarifying that it was not directly concerned with rights of discovery in litigation between beneficiaries and trustees, but rather with the principles which apply to court-ordered disclosure of information by trustees to beneficiaries.
The Court identified three types of information:
- trustee information – information generated or held by trustees as trustees for the purposes of a trust. The court may order the disclosure of trustee information to beneficiaries, but only if appropriate to ensure trustee accountability;
- personal information – information held by a trustee relating to a trust which is personal to the trustee. Such information does not need to be disclosed to the beneficiaries. The Court observed that, "[a]s a rough rule of thumb, advice paid for using trust money is most unlikely to be personal to a trustee" because trustees must not use trust funds for their own purposes;(12) and
- disclosable information – information that should be disclosed to a beneficiary, on the basis that such information is necessary for the beneficiary to assess whether the trustee has acted in accordance with the trust deed. Specific examples could include the trust deed and trust accounts.(13) Although this reflected the Supreme Court's earlier decision in Erceg v Erceg,(14) it noted that the position was "substantially the same" under the Trusts Act 2019.(15)
The Supreme Court held that the legal advice was trustee information. As to whether the legal advice was disclosable information, the only issue for the Court was whether disclosure to Addleman was precluded by legal professional privilege. This in turn depended on whether Addleman had a "joint interest" in the advice. To the extent such joint interest could be shown, Lambie Trustee Ltd could not claim privilege against her.
Joint interest exception to legal professional privilege
The Supreme Court found that the joint interest exception to legal professional privilege was engaged in circumstances in which the joint interest in legal advice was less direct than in the case of joint privilege, the latter being engaged where two or more people directly and jointly commission legal advice from the same lawyer and therefore share ownership of the advice.
The joint interest exception arose out of the law of trusts and a beneficiary's ability to obtain legal advice given to trustees in relation to the trust's administration.
Since it was founded on the assumption that the advice to which it applied was obtained for the benefit of the beneficiaries, there may be circumstances in which that assumption no longer applies. This might arise, for instance, where the legal advice obtained by the trustees is in respect of hostile litigation between them and a beneficiary. In such circumstances, there would be no basis for the joint interest exception and the trustees may rely on legal professional privilege as against the beneficiary.
The Court held that the joint interest exception applied to both legal advice privilege and litigation privilege. In relation to the latter, it provided an example of litigation between Lambie Trustee Ltd and a negligent financial adviser. If Addleman did not adopt a position in the litigation which conflicted with the trust, she would have a joint interest in the legal advice and any third party communications, such that the trustees could not assert privilege against her. However, the exception would cease at the time the joint interest between Addleman and the trust came to an end.
The Court considered three categories of legal advice sought in this case.
Legal advice relating to general administration of the trust
The Court found that it was "clear beyond argument"(16) that the joint interest exception applied to legal advice given to the trustee relating to the general administration of the trust, including a distribution to Addleman in 2002.
Legal advice as to what documents should be disclosed to the beneficiary
Next, the Court considered whether Lambie Trustee Ltd should be ordered to disclose legal advice given to it as the trustee concerning what documents should be disclosed to Addleman.
Following a summary of the correspondence dating back to 2003 in which solicitors for Addleman had made disclosure requests of the trustee, the Supreme Court concluded that, based on a review of the relevant case law, the joint interest exception generally ceased where the legal advice was received by a trustee after litigation had been commenced (or when it was imminent), while advice received before litigation was contemplated was subject to the joint interest exemption. However, the Court found that there had been little discussion in the cases as to the persistence of the joint interest in the period between contemplation and commencement of litigation.
Borrowing from the concept of litigation privilege, the Court held that, for the joint interest exception to apply, the advice must not have been sought for the dominant purpose of defending litigation by a beneficiary. However, given the obligations of a trustee to act appropriately and in the interests of the trust as a whole, the starting point for the courts should be the assumption that trustees seeking advice in respect of contemplated litigation are looking for guidance as to the right course of action. Courts could also expect trustees not to seek advice as to how to resist litigation without having first sought advice as to the appropriate stance to take on a point at issue. The joint interest exception would apply to both types of advice.
The Court concluded that the primary subject matter of the correspondence between the trustee and Addleman's solicitors was whether the proper administration of the trust warranted the disclosure that she sought. The Court held that it was "difficult to resist the view"(17) that Addleman's joint interest in the advice received by Lambie Trust persisted until the issue of the proceedings in June 2015. However, given the way that the Supreme Court's leave judgment was expressed, Lambie Trustee Ltd was allowed an opportunity to revert to the Supreme Court if it wished to maintain its claim of privilege in advice received after 7 November 2014(18) and before the commencement of proceedings in June 2015.
Legal advice for purposes of subject litigation
The Court considered whether Lambie Trustee Ltd was required to disclose the legal advice that it had obtained for the purposes of the subject litigation.
The Court was sympathetic to Addleman's position that the litigation was not hostile (there was no claim for breach of trust), but rather concerned the due administration of the trust in which both Addleman and the trustee shared a joint interest. However, in light of the authorities, the Court held that the trustee was entitled to assert privilege in the legal advice received after the commencement of the proceedings. From that point, the trustee and Addleman were on different sides. This was highlighted by the fact that Addleman had sought costs against the trustee.
Rather than relying on payment as determinative of disclosure, the Supreme Court decided that entitlement to disclosure should cease at the point at which the interests of the individual seeking disclosure (being the beneficiary) became hostile to that of the individual resisting disclosure (being a trustee). This will be a question of fact. Nevertheless, the Supreme Court attached significance to the fact of payment in identifying whether the documents sought were "trustee information" (which may be subject to court-ordered disclosure) or "personal information" (which the court will not require trustees to disclose).
Beneficiary access to information is likely to remain an area of interest in New Zealand as the new Trusts Act becomes embedded. One area in particular that the Supreme Court identified as an issue is whether the Act has removed the residual power of the court to order disclosure of information bearing on discretionary decisions by trustees.(19) Another issue may well be whether "trust information", which is widely defined under the Act,(20) extends to "personal information". If so, such information will be open to court-ordered disclosure.
Trustees in receipt of a request for information by a beneficiary should carefully consider the documents sought and the beneficiary's entitlement to disclosure. Ignoring or rejecting the request without justification could result in the trustee being liable.(21)
(1) Section 3 of the Trusts Act 2019.
(2) Sections 49-55 of the Trusts Act 2019.
(3)  NZSC 54.
(4) Lambie Trustee Limited v Addleman  NZSC 54 at .
(5) Addleman v Lambie Trustee Ltd  NZHC 2054.
(6) Addleman v Lambie Trustee Ltd  NZCA 616 and  NZCA 480.
(7) The new evidence admitted by the Court of Appeal is summarised at  of the Supreme Court's decision.
(8) Lambie Trustee Limited v Addleman  NZSC 54 at .
(10) Id at .
(11) As the Court observed at , the principal difference between legal advice privilege and litigation privilege is that litigation privilege (which, pursuant to section 56(1) of the Evidence Act 2006 and under common law, applies to material compiled "for the dominant purpose of preparing for" actual or apprehended litigation) covers a broader range of material (particularly communications with third parties).
(12) Id at .
(13) However, the Court noted at  that trustees who have legal professional privilege as against a particular beneficiary, in relation to particular information, may not be compelled to disclose that information to that beneficiary.
(14)  NZSC 28.
(15) Lambie Trustee Limited v Addleman  NZSC 54 at .
(16) Id at  and .
(17) Id at .
(18) This was the date on which Addleman's solicitors had advised the trustees that if disclosure was not provided then "our client will seek appropriate directions from the Court" and requested confirmation of authority to accept service. See Id at .
(19) The Court noted at  that under equitable principles, disclosure will not normally be ordered in relation to information bearing on discretionary decisions by trustees, but it was possible that the residual power to order disclosure of such information had been removed by section 49(b) of the Trusts Act 2019. Also see . However, the Court was not required to decide this point.
(20) Pursuant to section 49 of the Trusts Act 2019:
(a) means any information-
(i) regarding the terms of the trust, the administration of the trust, or the trust property; and
(ii) that it is reasonably necessary for the beneficiary to have to enable the trust to be enforced; but
(b) does not include reasons for trustees' decisions.
(21) An unjustified rejection of a request for disclosure could expose a trustee to personal liability for significant legal costs. In Lambie Trustee at  and , Addleman, who had been "substantially successful on the appeal", sought costs orders against the trustee, including that the trustee should:
- not be entitled to reimburse itself from the Trust for any costs related to the appeal; and
- be required to reimburse the trust (from funds not sourced from the trust) the amount of any costs awarded on the appeal.