Plaintiff v Defendants

Supreme Court of Victoria|2011-02-08|Before: JUDD J

TRUSTS - Trustee's refusal to disclose legal advice to beneficiary - claim for client legal privilege - joint privilege

PRACTICE AND PROCEDURE - client legal privilege - Evidence Act 2008 ss 118, 122 and .

1 The issue for determination on this application is whether a trustee is entitled to maintain a claim for client legal privilege against a discretionary beneficiary under a trust administered by the trustee. The trustee is Szaintop Constructions Pty Ltd. The beneficiary is Melissa Sarah Krok in her own right and as executrix of the estate of her late father, Daniel Szajntop. The claim was made by the trustee in response to an application by Ms Krok for inspection of four documents seized under a search order made pursuant to r 37B of the Rules of Court.

2 There are three related proceedings. On 5 May 2010, Leinad Constructions Pty Ltd and Ms Krok, in her capacity as executrix of the estate of her late father, commenced a proceeding (No. 2419/10) against Szaintop Constructions, which is controlled by Freda Grajzman, Ms Krok's aunt and the sister of her late father. The statement of claim alleges a breach of contract to develop and subdivide land owned by the defendant.

3 The second proceeding (No. 4045/10) was an application for an 'Anton Pillar' order, under r 37B. It was commenced by Originating Motion on 26 July 2010. The defendants are, for the most part, trustee entities controlled by Ms Grajzman, who is also a named defendant. Ms Krok's grandmother, Szaindl Szajntop is also a named defendant. The search order, made by Cavanough J on 29 July 2010, was directed to each of the defendants. Documents, including electronic data, were taken pursuant to the order from the office of Lowe Lippmann, Chartered Accountants. The documents presently in dispute, for which a privilege claim is made, were amongst the seized documents.

4 Ms Krok sought access to the seized material and leave has been given from time to time by the court for inspection, subject to claims for legal professional privilege. The trustees had argued that some material that was seized was not covered by the order, but they have deferred argument on that issue. Leave to inspect the material was granted subject to the trustee's right to later contend, if so advised, that some of the material was not covered by the order. Ms Krok proposes to formulate claims, to be pleaded in a statement of claim, against the trustees and others based in part on information contained in the seized material. She is yet to finalise the preparation of her statement of claim.

5 The third proceeding (No. 5599/10) was commenced by Szaintop Homes Pty Ltd and other trustee entities on behalf of various trusts, seeking declarations concerning the status of Ms Krok and her late father as beneficiaries under the trusts. A case management conference has been scheduled for 10 February 2011, at which time directions may be given for the trial of all three proceedings.

6 The approach adopted by the trustees to defer any contest about the scope of the search order, confining the dispute to claims for legal professional privilege, reflected a common sense recognition that most, if not all, of the material is or will be discoverable in the existing proceedings or the proposed new proceeding, and that Ms Krok now seeks only inspection. She does not yet propose to introduce any of the seized material into evidence. That distinction is recognised in the Evidence Act 2008. Section 118 provides:

118 Legal advice

Evidence is not to be adduced if, on objection by a client, the court finds that adducing the evidence would result in disclosure of -

(a) a confidential communication made between the client and a lawyer; or

(b) a confidential communication made between 2 or more lawyers acting for the client; or

(c) the contents of a confidential document (whether delivered or not) prepared by the client, lawyer or another person -

for the dominant purpose of the lawyer, or one or more of the lawyers, providing legal advice to the client.

7 Preliminary disclosure is dealt with under s 131A which provides:

131A Application of Division to preliminary proceedings of courts

(1) If -

(a) a person is required by a disclosure requirement to give information, or to produce a document, which would result in the disclosure of a communication, a document or its contents or other information of a kind referred to in Division 1 or 3; and

(b) the person objects to giving that information or providing that document -

the court must determine the objection by applying the provisions of this Part (other than sections 123 and 128) with any necessary modifications as if the objection to giving information or producing the document were an objection to the giving or adducing of evidence.

(2) In this section, disclosure requirement means a process or order of a court that requires the disclosure of information or a document and includes the following -

(a) a summons or subpoena to produce documents or give evidence;

(b) pre-trial discovery;

(c) non-party discovery;

(d) interrogatories;

(e) a notice to produce;

(f) a request to produce a document under Division 1 of Part 4.6;

(g) a search warrant.

8 It should be noted that a 'disclosure requirement' in s 131A(2), does not expressly include production pursuant to a search order. While a search order may share some characteristics with a search warrant, there are material differences. It was not submitted that I should approach the question of disclosure on the basis that s 131A had no application, or that the only opportunity the trustees had to assert the privilege was to object to the introduction of a document into evidence. In the circumstances, I have adopted the practical approach of dealing with the claim for privilege as if made under s 131A in the context of 'pre-trial discovery'.

9 There are four documents in contention. They are described in a schedule exhibited to the affidavit of Effie Kavadas sworn 17 December 2010. The affidavit also contains a supplementary description of each document and some evidence about the circumstances in which each document was prepared. The affidavit was prepared in response to a complaint by Ms Krok that there was no evidence supporting the claims for privilege, or that the evidence was inadequate. In substance, Ms Krok had submitted that the claims were only supported by conclusions asserted by Ms Kavadas in earlier affidavits and schedules. Notwithstanding the most recent affidavit, sworn 17 December 2010, Ms Krok did not abandon her challenge to the adequacy of the evidence supporting the trustees claims. In addition, she submitted that insofar as the trustees might have established a primary claim, any privilege was jointly held with the beneficiaries, including herself. Thus, even if the trustee might otherwise be able to assert a valid claim to client legal privilege against the rest of the world, it could not do so against her or her father's estate.

10 The trustee responded to Ms Krok's contentions by seeking to align the circumstance in which a trustee may be required to disclose a privileged document to those in which a trustee is required to disclose trust documents. They sought to focus attention on the beneficiary's proprietary interest in the document. The trustee argued, in effect, that if a beneficiary was not entitled as of right to the document, because of the nature of the document or the status of the beneficiary, there could be no basis for joint privilege. The trustee argued that Ms Krok and her late father were mere objects of a discretionary power and were only entitled as of right to a limited range of documents which did not include documents that were antecedent to the trustee's decision to exercise a power. It argued that the legal advice embedded in the disputed documents was of that character.

11 The trustee placed great reliance on Avanes v Marshall,[1] a decision of Gzell J in the Supreme Court of New South Wales. In that case, a beneficiary had brought a proceeding against a trustee in relation to the administration of a testamentary trust. In the course of discovery, the trustee challenged the right of the beneficiary to inspect the documents on the ground of client legal privilege. The beneficiary, in turn, challenged the trustee's claim on the footing that the documents were trust documents in which she had a proprietary interest.

12 The trustee in the present proceeding relied on the decision in Avanes to contend that an analysis of a trustee's entitlement to withhold disclosure on the ground of client legal privilege was to be determined by reference to the beneficiary's proprietary interest in the document. In Avanes, Gzell J adopted the approach of the Privy Council in Schmidt v Rosewood Trust Ltd,[2] concluding that there was no longer a general rule that a beneficiary had a right to inspect trust documents, subject to some exceptions. His Honour concluded that in relation to documents other than trust accounts, it should be for the court to determine to what extent information should be disclosed. It was for the court to exercise its discretion by balancing competing interests.

13 One difficulty with such an approach is that a trustee's right to withhold a document on the ground of client legal privilege becomes susceptible to the exercise of discretion, as part of a balancing process between the protection of the trustees from fishing expeditions by beneficiaries, and the entitlement of beneficiaries to documents and information. Such an approach seems inconsistent with the nature of the privilege. Client legal privilege is part of the substantive law, and its maintenance is not discretionary.[3]

14 In my opinion, a trustee's right to withhold, in the course of litigation, disclosure of a document from a beneficiary, on the ground of client legal privilege, is not to be determined by an analysis of the beneficiary's proprietary right to trust documents. The question is to be resolved by reference to the ordinary principles applicable to the protection of privileged information and documents, and obligations of disclosure in litigation. I respectfully agree with the remarks of Pullin JA in Schreuder v Murray (No.2),[4] where his Honour drew a distinction between the issue on appeal - whether legal professional privilege may be maintained - and the question of whether a beneficiary may inspect trust documents because of a proprietary interest in them.

15 In the present proceeding, the trustee's claim for client legal privilege is taken to have been made in the course of litigation with the beneficiary. Ordinarily, a party amenable to a discovery obligation, from whom disclosure is sought, must establish a claim to client legal privilege if that party is to be relieved from a disclosure obligation on that basis. Evidence is required. Mere assertions and conclusions are not sufficient. The evidentiary foundation may, of course, be augmented by inspection,[5] although inspection alone can rarely, if ever, establish a claim.

16 The protection afforded by ss 118 and 131A of the Evidence Act is predicated on the existence of a 'confidential communication' or 'confidential document'. Section 117 defines 'confidential communication' to mean:

... a communication made in such circumstances that, when it was made -

(a) the person who made it; or

(b) the person to whom it was made -

was under an express or implied obligation not to disclose its contents, whether or not the obligation arises under law;

... a document prepared in such circumstances that, when it was prepared -

(a) the person who prepared it; or

(b) the person for whom it was prepared -

was under an express or implied obligation not to disclose its contents, whether or not the obligation arises under law;

17 The evidence advanced in support of a claim for client legal privilege attaching to a document must at least establish the purpose for which the document was made, identify the maker and the party for whom the document was prepared, and establish the elements of confidentiality. In my opinion, the evidence advanced on behalf of the trustee was inadequate to support its claims. In her affidavit sworn 17 December 2010, Ms Kavadas verified the matters set out in a schedule which described each of the documents and the 'Basis of Claim of Privilege or Confidentiality'. Verification of the basis for the claim of privilege or confidentiality is not evidence of confidentiality.

The Schedule refers to a number of people and entities. The documents reveal that the following people and entities were involved in the preparation of the documents the subject of the Schedule namely:

8.1. Lowe Lippmann Chartered Accountants;

8.2. Joseph Kalb (also known as Joe Kalb) - is a chartered accountant in the employ of Lowe Lippmann, Chartered Accountants;

8.3. Arnold Bloch Leibler (ABL) - is a firm of solicitors who at times have acted for the Defendants;

8.4. Joey Borensztajn - Joey Borensztajn is a solicitor and partner of ABL;

8.5. Leigh Gratzer - Leigh Gratzer is a solicitor and was in the employ of ABL at all material times.

Joseph Kalb has been provided with a copy of each of the documents in the Schedule. The documents in all other respects have remained confidential. Mr Kalb and the Defendants have advised me and I verily believe that Mr Kalb has at all material times been instructed to act as their agent for the purpose of providing instructions to their lawyers and obtaining legal advice on their behalf in relation to various matters including the matters the subject of the extant proceedings between the parties herein in this Honourable Court.

19 Ms Kavadas gave the following evidence in relation to each of documents numbered 2 to 5 inclusive:

By my email dated 19 May 2010 to Freda Grajzman and Joseph Kalb, I advised them of the legal advice I had received from Senior Counsel in relation to some of the trusts that became the subject of this proceeding, as well as providing my own advice. In that email I also sought further instructions that would enable me to give further legal advice to the Defendants.

20 Upon inspection, document 2 recited the substance or effect of advice from senior counsel in relation to requests made on behalf of Ms Krok for information about the trusts. The requests and response were contained in correspondence passing between the parties, although presumably the advice was not. The reference to counsel's advice might be the subject of a valid claim for client legal privilege. So too, might be those parts of the document that Ms Kavadas said were her requests for further instructions. I note that the trustee did not claim that the documents were prepared for the purpose of this or any other litigation.

21 Apart from the ubiquitous incantation of confidentiality in the footnote to the email, there was no evidence directed to confidentiality. The requirement for evidence going to confidentiality was made more significant because of the 'joint privilege' argument advanced by Ms Krok. Did the retainer require that communications and documents of this kind be kept confidential from Ms Krok, and if so, why? It was not submitted that the trustee was acting on its own behalf, in order to protect its personal interest. Unfortunately, the correspondence mentioned in the email was not available for inspection. It may have provided some insight into the purpose of the trustee in seeking legal assistance.

22 The trustee's evidence in support of its claim for client legal privilege in respect of documents 3, 4 and 5, suffered from a similar inadequacy.

23 Ms Kavadas said the following in relation to document 3:

The Defendants have advised me that the firm ABL was engaged by them in late 2009 to give advice on the trusts that became the subject of this proceeding. Joey Borensztajn has advised me that he was the author of the email dated 16 April 2010 sent to Joseph Kalb that attached correspondence from ABL of even date. Joseph Kalb has advised me that he sent the email dated 23 April 2010 to Freda Grajzman and that that email summarised legal advice contained in the correspondence from ABL. Both Mr Borensztajn and Mr Kalb have advised me that they authored their respective emails.

24 I have inspected the document. While its content is capable of supporting a claim for client legal privilege the evidence does not extend far enough to establish that when the document was prepared, the person who prepared it or the person for whom it was prepared, was under an express or implied obligation not to disclose its contents to Ms Krok or other beneficiaries. The topic of the advice related to matters which might be said to have a bearing on the available fund or assets in respect of which a discretion might be exercised. Thus, evidence should have explained the scope of the retainer and why the advice was to be kept confidential from Ms Krok.

The email dated 25 January 2010 from Leigh Gratzer, then a Solicitor in the employ of ABL, to Freda Grajzman and Joseph Kalb seeks information for the purpose of providing legal advice about variations to trusts including trusts the subject of this proceeding. The email dated 8 April 2010 from Joseph Kalb to Mr Gratzer provided instructions to him and sought further advice from ABL. The email dated 8 April 2010 from Mr Gratzer to Mr Kalb sought further instructions from him that were provided by Mr Kalb in his email to Mr Gratzer by email dated 9 April 2010. Mr Kalb advises me that he was the author of the emails from him. Mr Borensztajn advises me that Mr Gratzer is no longer an employee of ABL but that his emails form part of that firms file.

That evidence was inadequate to support the claim. It is not sufficient to assume that merely because there is a communication between a lawyer and client that it was made pursuant to an express or implied obligation that it was to remain confidential from Ms Krok.

The email dated 16 April 2010 sent on behalf of Joey Borensztajn to Joseph Kalb (7-2.68) only attached correspondence (7-2.69 to 2.71). The letter dated 16 April 2010 from ABL to Mr Kalb contains legal advice about the vesting of a trust and the taxation implications of that event, the trust being a trust the subject of this proceeding. Mr Borensztajn advises me that he was the author of the said letter.

27 The evidence in relation to document 5 was also inadequate to support the claim. Accordingly, the trustee's claim that it was entitled to refuse to disclose any of the documents to Ms Krok, on the ground of client legal privilege, must fail.

28 There is another related ground upon which the claim must fail. While it is true that the status of Ms Krok and her late father may not rise above that of mere objects of a discretionary power, the trustee is not entitled to assert and maintain the claim of client legal privilege against Ms Krok. Assuming that the trustee's claim for client legal privilege is sustainable against the rest of the world, Ms Krok had a joint interest in the privilege in common with the trustee. That is because the advice sought and obtained by the trustee was in discharge of its obligation to administer the trust, and not for its own personal benefit.

29 The extent to which the Evidence Act deals with the concepts of joint privilege and common interest is limited. The concepts are dealt with in provisions defining circumstances in which disclosure does not constitute conduct inconsistent with the maintenance of the privilege. Section 122(5) provides:

(5) A client or party is not taken to have acted in a manner inconsistent with the client or party objecting to the adducing of the evidence merely because -

(a) ...

(b) of a disclosure by a client to another person if the disclosure concerns a matter in relation to which the same lawyer is providing, or is to provide, professional legal services to both the client and the other person; or

(c) of a disclosure to a person with whom the client or party had, at the time of the disclosure, a common interest relating to the proceeding or an anticipated or pending proceeding in an Australian court or a foreign court.

30 There is no definitional illumination of the circumstances described in sub-s (5)(b) or (c). While embracing familiar concepts, the statute leaves it to the common law to inform the requirements for joint privilege and common interest. The trustee submitted that there was no joint privilege because the documents did not contain legal advice or privileged material relating to the administration of the trust. It submitted that the advice was given or instructions sought in relation to matters anterior to a decision by the trustee to exercise a power. Thus, it argued, the discretionary beneficiary did not have a sufficient interest in the advice to support joint privilege. That submission would, if correct, mean that most, if not all advice sought and obtained by a trustee in anticipation of some action as trustee could be withheld from beneficiaries in litigation by raising a claim for client legal privilege.

31 The trustee's evidence and submissions did not explain why the advice did not relate to the administration of the trust. Inspection of the documents indicated otherwise. To characterise advice as confidential from beneficiaries merely because it preceded action by the trustee is against the weight of authorities and contrary to logic. If the advice was sought for the purpose of assisting a trustee to discharge its duty to administer the trust, in contrast to advice sought and obtained for its personal assistance, any privilege subsisting in the advice is held jointly by the trustee and all beneficiaries. Presumably the trustee felt at liberty to reimburse itself from the trust assets for the cost of the advice. The evidence does not suggest otherwise.

32 Having reviewed the documents, I am persuaded that the advice contained therein and the instructions sought in relation thereto, were sought and given in connection with the administration of the trust. Accordingly, I find that any client legal privilege in the documents is held jointly by the trustee and beneficiaries, including Ms Krok.

33 The cases analysed by Buss JA in Schreuder[6] do not distinguish between beneficiaries on the basis of their proprietary entitlement to trust documents when recognising the beneficiary's right of access to legal advice obtained by the trustee.[7] There does, however, appear to be some differences in approach. For example, in O'Rourke v Darbishire,[8] Wrendbury LJ said that the beneficiaries' right of access had nothing to do with the fact that the demand for inspection had been made in the course of litigation. His Lordship said that the right to discovery is a right to see someone else's documents. On the other hand, Salmon LJ in Re Londonderry's Settlement[9] drew a distinction between a beneficiary seeking disclosure 'in the air' and the right of access in discovery.

34 It is not necessary to attempt to resolve such differences, because in the present case the parties were proceeding on the footing that the competing claims arise as if in the course of discovery. On the one hand, it may be thought to be a curious outcome for a beneficiary to be treated as a joint holder of client legal privilege, but denied access to the advice unless and until a claim were to be made in the course of litigation. As against that, there may be a sound basis to distinguish between a beneficiary's proprietary right to a document 'in the air', and a trustee's right to assert a claim for privilege against a beneficiary in litigation.

35 In conclusion, I am not satisfied that the trustee has established its primary claim for client legal privilege in respect of any of the four documents. But in my view, any such privilege, if established, would be held jointly with the beneficiaries, including Ms Krok. Accordingly, the trustee is not entitled to rely on its claim for client legal privilege to withhold inspection from Ms Krok. The four documents should be produced to Ms Krok for inspection.

[4] [2009] WASCA 145; (2009) 260 ALR 139, [10]-[12]. See also Buss JA at [98]-[99].

[7] See for example Talbot v Marshfield (1865) 2 Dr & Sm 549; 62 ER 728, 729; Re Postelthwaite (1887) 35 Ch D 722, 727; O'Rourke v Darbishire [1920] AC 581, 619-620.

[8] [1920] AC 581, 619-620.

At a glance

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Judgment (56 paragraphs)

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Cases Cited (3)