Trust disputes and legal professional privilege claims by trustees
The case of Hancock v Rinehart (Privilege)  NSWSC 12 related to a legal professional privilege claim concerning the Hope Margaret Hancock Trust (Trust).
The case provides a useful current summary (2 February 2016) of the NSW law and practice in claims for legal professional privilege. It also highlights the importance of trustees carefully considering their position and how they proceed when dealing with disgruntled beneficiaries in the context of a trust dispute.
The background facts to the Trust privilege dispute included the following:
the 2015 appointment of Bianca Rinehart (the second plaintiff) as new trustee of the Trust in place of her mother Gina Rinehart (the defendant);
anticipated or pending proceedings in the Supreme Court of Western Australia by John Hancock (the first plaintiff) against his mother Gina Rinehart (the WA Proceedings);
a motion and subpoena to produce issued by Bianca to Gina’s lawyers, Sceales & Company (Sceales). The subpoena required production of certain Trust documents;
Sceales produced the documents to the court, without objection;
Gina claimed legal professional privilege in relation to some of the documents produced by Sceales; and
both John and Bianca sought access to those documents.
Legal Professional Privilege
Legal professional privilege protects a document that contains a confidential communication between a lawyer and client from compulsory disclosure. In general terms, the document must have been made for the dominant purpose of a lawyer providing legal advice to the client and/or for the dominant purpose of actual or contemplated legal proceedings.
In his judgment, Justice Brereton noted that Gina, as the person claiming privilege, had the onus of proving the facts on which the privilege claim was founded. A mere assertion of privilege is not enough. Admissible evidence must be produced that reveals the relevant characteristics of the documents the subject of the privilege claim so as to allow the court to make an informed decision about the claim.
It was submitted on Gina’s behalf that the court could conclude there was a valid privilege claim from an accumulation of factors. The factors were:
the affidavit of Gina’s current lawyer (not Sceales);
the description of the disputed documents the subject of the claim;
the other documents tendered; and
inspection by the court of the disputed documents, which the court was asked to undertake.
The court held that the lawyer’s affidavit contained no evidence of the circumstances in which and purposes for which the disputed documents were created. The affidavit did not even contain an assertion that the disputed documents were privileged.
Exhibited to the lawyer’s affidavit was a bundle of documents which were claimed to be documents created for the purposes of the WA Proceedings.
Justice Brereton rejected this claim. It was found that there was no evidence about the circumstances and purposes of the disputed documents, including whether the documents were created for Gina personally as distinct for her in her capacity as trustee.
The failure of an appropriate person to depose about the purpose for which the disputed documents were created was, in the court’s view, a significant problem for Gina in establishing her privilege claim. The failure to call witnesses in support of the privilege claim may lead the court to infer that there was no available evidence to support the claim.
In relation to the inspection of the disputed documents by the court, a review of the relevant cases and rule 1.9 of the Uniform Civil Procedure Rules (objections to production of documents founded on privilege) showed that an objection to production founded on a privilege claim must be taken early, before the documents are produced to the court. It was held that a privilege claim must be supported by sworn direct evidence proving the facts to establish the claim. No party – especially the party claiming privilege – can insist that the court inspect the documents. Proving the facts to establish a privilege claim is independent of the court’s discretionary power to require production to allow inspection for the purpose of adjudicating the claim.
The court ordered that Bianca (the second plaintiff) have access to the disputed documents (with the order being stayed for several days).
Legal advice obtained by trustees
The case also contained some helpful general principles relevant to a trustee’s claim for legal professional privilege. The issue is important in the context of a trust dispute where there are disgruntled beneficiaries.
A former trustee is not entitled to maintain a privilege claim against a new trustee or beneficiaries of the trust in respect trust documents. Legal advice obtained by a trustee for guidance in the administration of the trust or the proper exercise of trustee powers, belongs to the trust and not the trustee personally. However, advice obtained for the trustee to assist in defending legal proceedings brought against the trustee by a beneficiary, belongs to the trustee alone.
In trust disputes, the purpose of the advice can often become blurred. It was noted by Justice Brereton that if the costs of obtaining legal advice are paid from the trust fund, that fact suggests that the advice was obtained on behalf of the trust and not the trustee personally. However, this is not conclusive as in some instances trustees are entitled to be indemnified out of the trust fund for an expense incurred for the trustee’s personal benefit. The best example of such an instance is where the trustee successfully defends legal proceedings brought by a beneficiary and is unable to recover from the beneficiary.
Suggestions for trustees
In a trust dispute, a trustee needs to carefully consider the nature of the dispute and whether the dispute relates to the administration of the trust and/or their actions as trustee.
The possible need to make a privilege claim should be identified early and thought should be given as to the purpose of any advice and whether that advice is for the benefit of the trust or the trustee personally. Advice for the trustee personally should be paid for by the trustee and not from the trust fund. A trustee claiming legal professional privilege in relation to documents should object to production early and before the documents are produced to the court. In a contested privilege claim, the trustee must provide admissible evidence of the circumstances in which and purposes for which the documents were created.
Finally, in difficult trust disputes, it is always open for trustees to apply to the court for judicial advice under s63 of the Trustee Act 1925 (NSW) on any question relating to the ‘management or administration of the trust property, or respecting the interpretation of the trust instrument’. A recent case concerning an application for judicial advice for trustees in the context of legal proceedings relating to a trust was Re: Application of the Anglican Property Trust Diocese of Bathurst  NSWSC 13.
Author: Gerard Basha