Piercing the privilege: beneficiaries’ right to obtain legal advice provided to a trustee

Dawson-Damer and others v Taylor Wessing [17.05.19]

In a dispute between a beneficiary and a trustee, access to legal advice received by the trustee can be of paramount importance to the beneficiary’s efforts to impeach the trustee’s conduct. Under English law, beneficiaries are generally entitled to see legal advice obtained by the trustee for the purposes of administering the trust, whereas other jurisdictions, including certain offshore jurisdictions, recognise a trustee’s right to withhold such legal advice from beneficiaries. The recent English decision of Dawson-Damer concerned such a scenario in the context of a dispute over an offshore trust where the beneficiaries sought to rely on the provisions of the UK Data Protection Act 1998 (DPA) to obtain privileged documents that would be otherwise be unavailable to them under the governing law of the trust.

Background

In Dawson-Damer, beneficiaries of two Bahamian trusts brought a claim against the trustee’s English solicitors (TW) accusing TW of breaching the DPA by failing to comply with the beneficiaries’ data subject access requests (DSARs) which included requests for privileged documents. The DSARs were made in the context of litigation between the beneficiaries and the trustee in the Bahamas and elsewhere (including in Bermuda, where the beneficiaries sought to freeze trust assets pending determination of their case in the Bahamas). The litigation arose after the trustee restructured the discretionary trusts to exclude the beneficiaries from the overwhelming majority (some US$402 million) of the trust assets. Under Bahamian law, the trustee could not be compelled to produce trust documents, including legal advice obtained by the trustee in connection with the exercise of any discretion.

The DPA claim was initially determined in favour of TW. The beneficiaries then appealed successfully to the English Court of Appeal which then remitted three issues to the High Court:

  1. The extent of the legal professional privilege (LPP) exemption under the DPA and the ability of a trustee to rely on this exemption against the beneficiaries of the trust.
  2. Whether TW’s old paper files constituted a “relevant filing system”, such that they fell within the definition of “data” – the High Court found that they did, although TW has been granted permission to appeal.
  3. Whether TW had failed to carry out a reasonable and proportionate search for the beneficiaries’ personal data – the High Court found that it had.

Legal professional privilege in a trusts context

The DPA contains an exemption from the ordinary disclosure obligations for documents covered by LPP. The beneficiaries argued that any privilege was joint as between them and the trustee, so that the documents could be withheld from the rest of the world, but had to be disclosed to the beneficiaries. Mr Andrew Hochhauser QC (sitting as a Deputy Judge of the Chancery Division) disagreed, analysing the LPP exemption thus:

  • As a matter of English law, LPP enables TW to withhold disclosure of privileged documents
  • The beneficiaries seek to rely on their status as beneficiaries to obtain access to the documents (i.e. to pierce the privilege)
  • The beneficiaries therefore invoke the governing law of the trust
  • The law of the trust does not entitle the beneficiaries to access the documents
  • TW is therefore entitled to withhold the documents on the basis of the LPP exemption, and does not breach the DPA in doing so.

The ramifications of the decision

The beneficiaries attempted a creative approach to obtaining disclosure to which they were not entitled in the Bahamian litigation, relying on their rights as data subjects under the DPA (which, in material part, is reproduced in the UK Data Protection Act 2018, such that this decision will continue to be of relevance).

The case is particularly interesting in the offshore context. Although high net worth trusts are often settled offshore for tax mitigation and other reasons, it is common for offshore trustees to obtain legal advice from English solicitors and barristers. If protections afforded to trustees under the governing law of the offshore jurisdiction could be circumvented by beneficiaries using English data protection rights, that would expose offshore trustees in circumstances where they had obtained advice in the belief that it would not be shared with beneficiaries. It would also have a chilling effect on trustees’ willingness to access the expertise of specialist English trust lawyers in future.

Dawson-Damer allays those fears, confirming that the governing law of the trust will determine whether a beneficiary can serve a DSAR on the trustee’s lawyers in order to open a back door to trust documents, whether for use in litigation against the trustee or otherwise. If the governing law says ‘no’, then English law says likewise.

Read more items in Offshore Professional Risks Brief – October 2019