The NSW Supreme Court has ruled that a trustee of a family trust had waived her privilege on legal advice contained in tax advice provided by the trust’s accountants.
The trustee claimed legal professional privilege (LPP) in relation to documents produced in answer to a subpoena served on the trust’s accountants who had provided tax advice to the trustee that included references to legal advice. The plaintiffs, who are beneficiaries of the family trust, alleged that the trustee was aware that the accountants had been instructed to make certain assumptions for the purpose of preparing their advice. The plaintiffs also alleged that the trustee was aware of the accountant’s advice that the beneficiaries of the trust would only be liable for CGT in the event of a distribution of [s95] ‘net income’ on the vesting of the trust. The plaintiffs further alleged that the trustee was aware that the mere vesting of the trust [without that distribution] would not have certain consequences [namely crystalising a capital gain, via CGT E5, on the entire trust estate, which if ‘post-CGT’ would have produced a very large capital gain].
Accordingly, the plaintiffs alleged that the trustee’s conduct in causing a letter to be sent to the beneficiaries was misleading for failing to disclose various matters. The letter asserted that the trustee had received legal advice that it was legally possible for the trustee to extend the vesting date of the trust, should she so choose to do. Based on the above, the letter said it was in the financial interests of the beneficiaries for the vesting date of the trust to be extended to the maximum period allowed under the law of perpetuity. Otherwise, the plaintiffs alleged that the letter conveyed that they would be liable for substantial CGT that would render them bankrupt, when that was not the case.
In granting the plaintiffs access to the redacted parts of the documents produced by the accountants under subpoena, the Court ruled that the trustee had waived her privilege in respect of the legal advice contained in the documents. The Court considered that the trustee’s reliance upon her belief held at the time of the letter, combined with the content of the letter and the reference to the taking of legal advice, would be inconsistent with the maintenance and holding back of the content of that legal advice.
(Hancock & Anor v Rinehart & Ors [2013] NSWSC 1402, NSW Supreme Court, Bergin CJ in Eq, 23 September 2013.)
[LTN 191, 2/10/13]