As practitioners in the financial services industry are well aware, in recent years, technological developments and changing business practices have combined to create a wealth of accessible personal information. In parallel, national security concerns, the drive to augment domestic tax revenues, political pressures, the continuing fight against international crime and the seemingly unquenchable thirst for so-called celebrity gossip, have combined to gradually erode traditional notions of personal privacy and confidentiality.
Hand in hand with those developments, attempts have been made to regulate accessibility to and the accuracy of records containing private personal information. Data protection laws have been passed in several countries governing the collection, storage and use of such information. The European Union passed a directive in 1995 containing a number of basic principles for the regulation of the holding and processing of private data which were to be enshrined in the domestic laws of European member states. That directive in turn gave rise to the Data Protection Act of 1998 (“DPA”) in England and Wales.
It is perhaps surprising therefore that we had to wait until 2015, almost 20 years later, for a reported case from the courts of England and Wales in which a beneficiary tried to invoke the DPA in support of an application for disclosure of confidential trust documents, in this case from the London solicitors of the trustee of their family’s trust.
Not too many years ago, a law firm’s records would have been handwritten or typed on a manual typewriter and duplicates made using carbon paper. Over time, documentation would be destroyed in keeping with firms’ file retention policies, occasionally misfiled or sometimes simply thrown away by mistake, complicating disclosure to third parties, whether voluntarily or by compulsion, in for example, hostile litigation. In this case, the law firm had retained some 30 years of records relating to the trust in question, but a great deal of those records remained in old-fashioned paper files and not in chronological order, rather than stored electronically in readily searchable form.
The trustee, Grampian, was resident and incorporated in the Bahamas. The trust was governed by the laws of the Bahamas and was established in 1992 by the resettlement of funds from another Bahamian law trust settled in 1973. In 2006 and 2009, the trustees made appointments totaling US$402 million from the 1992 trust to be held on new discretionary trusts for the benefit of the first claimant’s brother-in-law and his family, leaving only US$9 million in the 1992 trust. The claimants were informed of these appointments in 2013 and 2014.
Perhaps not surprisingly, the first claimant, who was a beneficiary of the 1992 trust and the mother of the second and third claimants who were not beneficiaries, was aggrieved to learn of the appointments. She challenged their validity and the validity of the resettlement which gave rise to the 1992 trust. In February 2014, she sought copies of trust documentation from the trustees. She followed her trustee request with a formal request of Taylor Wessing (“TW”), the trustee’s London solicitors, in August 2014 asking for copies of all ‘data’ of which she and her children were the subject, pursuant to her rights under the DPA. TW refused to provide that documentation.
Accordingly, in January 2015, the claimants made an application for orders requiring TW to comply with their data requests, an application which TW resisted. In March 2015, the first claimant issued a writ in the Bahamas against the trustee challenging the validity of the appointments and seeking return of the assets transferred out of the 1992 trust by those appointments. At the time of the hearing of the application in England, the Bahamian claim had not been particularized.
TW argued primarily that the bulk of the potentially relevant data which they held was exempt from the access provisions of the DPA on the basis of legal professional privilege, privilege which the trustee did not waive and it was asserted, was in any event, a matter of Bahamian, not English, law. TW also argued that to check 30 years of records in relation to the trusts in question to decide whether legal professional privilege applied to every scrap of potentially relevant information held, would be disproportionate and unreasonable, particularly as the trustee did not know whether the claimant intended to make allegations of misconduct against it in the Bahamian proceedings. TW further argued that their manual filing system of old-style loose leaf files did not constitute the sort of computerized easy-to-search records envisaged by the DPA.
TW relied on the judgment of Auld LJ in Durant v FSA  EWCA 1746 where it was held that the purpose of the DPA was not to “assist … in the discovery of documents that may assist in litigation or complaints against third parties ….” They argued that it could reasonably be inferred from the claimants’ application that their ulterior motive was to obtain documents for use in the Bahamian proceedings. This could in some cases amount to an abuse of process, if, “but for the collateral purpose, the application would not have been brought at all.” Further, Auld LJ concluded in Durant that “Parliament intended to apply the Act to manual records only if they are of sufficient sophistication to provide the same or similar ready accessibility as a computerised filing system,” which, TW argued, was far from the case with their records.
Conversely, the claimants argued that when a trustee seeks legal advice in relation to the terms or administration of a trust, the trustees and beneficiaries have a joint privilege in the information and advice which arises as a consequence, meaning that the trustee could not assert privilege as against the claimant beneficiary. Those of us in the trusts world will be familiar with the principle that if legal advice relating to the administration of the trust is paid for by the trustee out of the trust assets, the beneficiaries can, in some cases, reasonably expect sight of that advice if they ask for it.
TW however took the view that if the trustee was seeking advice in relation to a threatened or actual claim against it by a beneficiary, then the trustee was entitled to assert legal professional privilege and separately, is entitled to preserve confidentiality in communications relating to the exercise of its dispositive discretions. There would be only one route available to the beneficiary to access those documents and that would be if the beneficiary sought to challenge the validity of the trustee’s discretionary decision or alleged bad faith, thus entitling her to copies as part of the discovery of documents procedure in hostile litigation.
The judge accepted TW’s submissions on this as an accurate summary of the position as a matter of English law. He observed that in the absence of particulars of claim in the Bahamian proceedings and any indication that the claimant intended to allege bad faith or challenge the validity of the exercise of the trustee’s discretion, it was difficult for him to assess whether she would be able to rely on obtaining otherwise confidential trust documentation via discovery.
Interestingly, the experts in Bahamian law instructed separately by TW and the claimant did not agree as to what the disclosure position would be in the Bahamas if the claimant did make hostile claims against the trustee. The judge concluded that it did not, for his purposes, matter which expert was correct. The issue of what would be discoverable would be decided between the trustee and beneficiary in the Bahamian proceedings and “it was plainly more desirable that the issue be determined between those parties rather than between TW and the beneficiary.”
The judge concluded that it was “no part of [the DPA’s] purpose to provide the claimants with information or disclosure of documents which may assist them in litigation against Grampian whether in England or the Bahamas.” He found that he “had great difficulty in following the concept that the principles of disclosure in relation to trustees and beneficiaries can in some way be separated from legal professional privilege.” He also agreed with TW that it was neither reasonable nor proportionate for TW to undertake the necessary search to assess whether a document was covered by privilege, as it would be time consuming and costly in the absence of a fully particularized claim against the trustees. He also observed that in his provisional view, TW’s manual filing system did not fall within the parameters of the DPA in any event.
The position in the Cayman Islands with regard to the parameters of the data protection legislation will of course become clearer once the draft statute passes into law, but as far as the trust law principles are concerned, the court here would have the same approach in relation to trustee and beneficiary disclosure and legal professional privilege. It is clear that the English court in Dawson-Damer had little patience with the claimants’ attempts, in such a hostile context, to circumvent her difficulties in obtaining documents from the trustee by using the DPA. The judge left open the possibility of an application for leave to appeal and it remains to be seen whether that will be the next stage in this interesting debate.