We are all familiar with the core principle of trust law that a trustee must account to its beneficiaries for its administration of the trust. The nature, scope and wider implications of that principle have given rise to a great deal of debate (and occasionally dispute), not least in relation to beneficiary requests for information.
A request for trust documents is often the first stage in a beneficiary’s campaign to hold a trustee to account for its conduct in the administration of the trust. Often the central area of disagreement between them is the extent to which the trustee has any discretion to refuse to meet such a request.
The principle of trustee discretion in issues of disclosure to beneficiaries has underpinned the development of the common law in this area for decades. In Re Londonderry’s Settlement, it was held that a trustee may be entitled to refuse a beneficiary’s request for documents, where such documents evidence its deliberations or reasons for the exercise of its discretions.
Similarly, in Schmidt v Rosewood Trust Ltd (applied most recently by the Cayman Islands’ court in the matter of the A Trust ) it was held that no beneficiary has an entitlement as of right to disclosure of trust documents; the more principled and correct approach is to regard the right to seek disclosure of trust documents as one aspect of a court’s inherent jurisdiction to supervise and if necessary, to intervene in, the administration of trusts. As the court held in Breakspear v Ackland in relation to disclosure of letters of wishes, “the question begins and ends, both for trustees and for the court, as a question of discretion, or the review of the exercise of discretion.”
More recently, there have been attempts by beneficiaries to utilize the Data Protection Act 1998 (DPA) in England to obtain documentation from a trustee or its agent solicitor, see Taylor Wessing v Dawson-Damer. In the Cayman Islands, there is an express carve-out in relation to beneficiary requests for information at section 30 of our new Data Protection Law (DPL), which at the time of writing, is not yet in force.
The section 30 carve-out should prevent beneficiaries from trying to utilize the DPL as a route to obtaining trust documentation from a trustee or its lawyers. Section 30 also provides that information will be exempt from the subject information provisions of the DPL if the data consists of “information in respect of which legal professional privilege applies.”
The provisions of section 30 of the DPL in respect of beneficiary requests for information are clear. What may not always be so clear to clients is what constitutes “legal professional privilege” and whether a trustee can reasonably use it to resist a request for certain categories of information from a beneficiary.
Privilege has been described by the Privy Council as “a fundamental condition of the administration of justice which [cannot] be overridden at common law by or balanced against any competing public interest or right to compel production.” However, what appears to be a straightforward statement of principle comes with a health warning, as: “… an apparently simple and easily grasped principle which can be confidently enunciated but which has been developed over a long time by the courts in an incremental fashion until its scope is not always clear and its application is often uncertain. It is a trap for the unwary and the over confident.”
The difficulty in pinning down what is and what is not privileged information is complicated by the fact that there are different categories of privilege. Legal advice privilege and litigation privilege are both components of the broad category of legal professional privilege. There is also joint privilege, common interest privilege and without prejudice privilege. For the purposes of this discussion, I will focus on legal professional privilege as it is the category that is most commonly of relevance to trustees, and it is what is mentioned at section 30 of the DPL.
What constitutes legal professional privilege? Passmore describes it as “an enhanced form of protection over the confidentiality over certain types of communication made between a professional legal adviser and his client or, where made in respect of legal proceedings, between a legal adviser or client and a third party.” Lord Hoffman described it as “a fundamental human right … a necessary corollary of the right of any person to obtain skilled advice about the law.”
As a fundamental human right, one would imagine it should be fairly straightforward to identify whether legal professional privilege attaches to a particular document. The position in relation to a trustee can however be complicated by a number of factors:
(a) one of the trustees may be a practicing lawyer and may be providing legal advice to his fellow trustees, as well as acting as trustee;
(b) even if there are court proceedings on foot, trustees may still need to communicate with the settlor, beneficiaries, protector or enforcer about issues in the day to day administration of the trust; and
(c) it may be difficult to draw a clear distinction between advice given to the trustee for the benefit of the trust, and advice given to the trustee in the context or in contemplation of litigation in relation to its own position (and risk) and occasionally legal advice may cover both within one document.
In Blades v Isaac, the defendants were each partners in the same law firm and co-trustees of a will trust. The beneficiaries included the deceased’s two daughters who had a fractious relationship with one another. Initially the trustees refused disclosure of certain financial information about the trust to one of the daughters on the basis of legal advice obtained from counsel as they were concerned about disclosure not being in the wider interests of the beneficiaries of the trust. They offered to have an independent third party accountant or solicitor look at the trust accounts to ensure that there was nothing of concern in them. When the beneficiary rejected this suggestion, the trustees offered to make an application for directions. The beneficiary responded by issuing her own claim.
Shortly before the final hearing of that claim, the trustees obtained a second opinion from different counsel and on the basis of that second opinion, disclosure was given. The only question before the court therefore was how the costs of the application were to be addressed.
In finding that the costs of all parties should be paid from the trust fund, the court made a number of helpful remarks about legal professional privilege and trustees. The trustees had been asked by the claimant beneficiary to disclose the initial counsel’s advice to her. She alleged that the trustees had waived privilege in it by referring to it extensively in correspondence. The trustees refused disclosure and denied that privilege had been waived.
The judge held that the parties’ argument over privilege “completely misses the point” because “the opinion had been obtained by the defendants as trustees, for the benefit of the trust rather than for their benefit personally” and was, quite properly, paid for from trust funds. However, “the corollary of this was that it was a trust document, and therefore in the same category as other trust documents, that is, available to the beneficiaries if the court so considered. In relation to such documents, there can be no legal professional privilege as between trustee and beneficiary. Arguments about privilege … were therefore simply irrelevant.”
That did not mean that it was automatically disclosable to the requesting beneficiary. The trustees may have had sound reasons for refusing disclosure in the wider interests of all of the beneficiaries. However, they could not use privilege as a reason for refusing disclosure in those circumstances.
Sensible trustees should therefore be aware of the possibility when they obtain legal advice that sight of it may be requested by a beneficiary who will argue that as it was paid for from trust funds it should be regarded as a trust document. Trustees should be particularly vigilant in circumstances where they wish to take legal advice in relation to a complaint from beneficiaries about their own conduct. Trustees should ensure that they pay for such advice themselves. If they are in any doubt about whether privilege will attach to legal advice, they should discuss this with their lawyer before formal advice is obtained.
Further, particularly in circumstances where one of the trustees is a lawyer or a member of the team at a corporate trustee is a lawyer, it is important that everyone is familiar with the concept of legal professional privilege so that consideration is given to the content of documents and the recipients of them, so that the question of privilege plays no part in any dispute over disclosure of documents to beneficiaries.