Drawing the Line: A Case Comment on Daniels Estate v. Darling, 2024 NSSC 103
Overview
I was preparing for a contested passing of accounts last week and found myself reviewing the court’s decision in Daniels Estate v. Darling. It is not a new decision, but it remains a very useful one. It addresses important questions about privilege in the context of a probate solicitor’s file, which are often misunderstood, or at least considered to be a grey area of sorts.
The question is this: when a beneficiary objects to an estate’s legal bills on a passing of accounts and demands production of the estate’s legal files, what is the estate obliged to produce, and what may it withhold?
Justice Gatchalian’s reasons in Daniels Estate provide clear and direct guidance on these issues. The proctor’s file and the litigation counsel’s file are fundamentally different, and so the rules of privilege and disclosure that attach to each are also quite different.
Background and Facts
The Personal Representatives of the Estate of Leota Maie Daniels applied to pass the accounts of the Estate under section 71 of the Probate Act. Carol Darling, one of the beneficiaries, objected to the application. Among her objections was a challenge to the amount of the legal bills the Estate had incurred, and in support of that challenge she sought production of the files of the Estate’s lawyers.
Two lawyers from the same firm had been involved in the Estate’s affairs. One had acted as proctor — solicitor to the Estate in the administration. The other had acted as litigation counsel for the Estate when Ms. Darling brought a contested proceeding against it in September 2021. That earlier litigation had run its course by the time the passing of accounts came on. It had not gone well for Ms. Darling: the Estate had moved successfully to enforce a settlement, and Ms. Darling had been ordered to pay $16,000 in costs.
The Estate agreed to produce the proctor’s file. It claimed solicitor-client privilege over the litigation file. Ms. Darling moved to compel production of both.
The Proctor’s File
The first principle is one most estates practitioners know intuitively, even if they have not had occasion to articulate it. A trustee cannot assert solicitor-client privilege against a beneficiary over advice obtained for the administration of the trust. The trustee and the beneficiary share a common interest in that administration, and the legal advice taken in furtherance of it is, in a meaningful sense, taken on the beneficiary’s behalf and at the beneficiary’s ultimate expense. The principle traces back to Lord Wrenbury in O’Rourke v. Darbishire and has been applied consistently across the common law provinces.
The court’s treatment of this branch of the motion is short, because the Estate did not contest it. The proctor’s file was produced. For practitioners, the takeaway is that a proctor’s file – and all its contents – should be considered available and subject to review by the estate’s beneficiaries.
The Litigation File
The second principle is where things get more interesting. The common interest that compels production of the proctor’s file does not extend to communications generated in the course of litigation between the trustee and a beneficiary. Where the trustee and the beneficiary are adverse parties, there is no common interest to share. It follows that the file the trustee’s litigation counsel builds in defending against the beneficiary’s claim is privileged in the ordinary way. The court put the distinction succinctly: a beneficiary is entitled to opinions taken in the course of determining the proper distribution of the trust, but not to opinions procured by the trustee for the trustee’s own protection in relation to claims made against them.
On the facts of Daniels Estate, the litigation file fell squarely on the protected side of the line. Litigation counsel had been retained for one purpose — to defend the Estate against Ms. Darling’s contested proceeding — and the parties had been adverse in interest from the moment that proceeding was filed. The court therefore recognized the privilege.
The Bad Faith Argument
There is a recognized qualification to this general rule, and Ms. Darling tried to invoke it. Where a beneficiary alleges bad faith or breach of fiduciary duty against the trustee, documents relevant to those claims may have to be produced notwithstanding the trustee’s privilege. The qualification is real and well established. But on these facts the court was not prepared to apply it, and the reasons it gave are also quite interesting.
The first difficulty was with the terms of the pleadings. Ms. Darling had not pleaded bad faith in her Notice of Objection. She had pleaded breach of fiduciary duty in connection with the commission claimed by the Personal Representatives, and she invited the court to read that broader allegation into her narrower pleading. The court was prepared to assume the point in her favour for the sake of argument, but this assumption did not save her, because the second difficulty was an evidentiary one. When asked at the hearing to point to anything in the record that might support the allegation of bad faith, her counsel could not. Our Court of Appeal made clear in Intact Insurance Company v. Malloy that an allegation, however carefully drafted, is not by itself a basis for a production order. Without an evidentiary foundation, a request for production becomes a fishing expedition.
In reply submissions, Ms. Darling’s counsel asked the court to look through the affidavits filed in the earlier appeal to find a basis for the allegation in those materials. The court declined, and rightly so. The onus was Ms. Darling’s, the suggestion came too late for the Estate to respond, and it was not the court’s role to build her case for her.
Why the Decision Matters
The boundary between the proctor’s file and the litigation file is clear in theory but sometimes blurrier in practice. Beneficiaries assume that because the estate’s legal fees come out of the residue, they are entitled to read everything the estate’s lawyers have written. The reality is, however, more nuanced.
What is more, Daniels Estate provides useful guidance on the bad faith qualification. That qualification exists for a reason and serves a real purpose, but it is narrow, and the court will not let it become an avenue for general access to litigation files. A bare pleading is not enough. An evidentiary record the court can actually see is required, and the burden of establishing it sits with the party seeking production.
Takeaways for Practitioners
A few practical points come out of all of this.
First, the proctor’s file and the litigation file should be kept structurally separate from the moment a contested proceeding involving the estate materializes. Where a single firm — or a single lawyer — wears both hats, the file management has to reflect the distinction from day one. Separate file numbers, separate billing entries, separate correspondence. The cleaner the structural separation, the cleaner the eventual privilege analysis on the passing of accounts will be.
Second, on a contested passing of accounts, proctors should be prepared to produce their files.
Third, claim privilege over the litigation file with confidence. A trustee defending against a beneficiary’s claim is entitled to the same confidential relationship with counsel as any other litigant, and Daniels Estate confirms this.
Fourth, if you act for a beneficiary and you intend to allege bad faith as a basis for production, plead the allegation directly and put the evidence before the court. The evidence you rely on has to be before the court on the motion record, and not buried in affidavits filed in a different proceeding that the motions judge has not been asked to read.
Conclusion
This distinction will only become more important as estates continue to become larger, more complicated, and more contentious. The proctor works for the estate and, through the estate, for the beneficiaries. Litigation counsel works for the trustee against the claimant. The privilege follows the relationship, and we as estate practitioners should always remain cognizant of which “hat” we are wearing at any given time.
