Levers J
```markdown # IN CHAMBERS # IN THE GRAND COURT OF THE CAYMAN ISLANDS ## CAUSE NO: 306 OF 2006 & CAUSE NO: 447 OF 2006 ## IN THE MATTER OF THE CONFIDENTIAL RELATIONSHIPS (PRESERVATION) LAW (1995 REVISION) ## AND IN THE MATTER OF MERRILL LYNCH BANK AND TRUST COMPANY (CAYMAN) LIMITED AND FIDUCIARY SERVICES LIMITED AND PROCEEDINGS BEFORE THE GRAND COURT OF THE CAYMAN ISLANDS, CAUSE NO: 555 OF 2005 ## AND IN THE MATTER OF MERRILL LYNCH INTERNATIONAL BANK LIMITED AND PROCEEDINGS BEFORE THE HIGH COURT OF JUSTICE OF ENGLAND AND WALES, CHANCERY DIVISION, IN CLAIM NOS. HC05C03744 AND HC05C03745 BEFORE: The Honourable Madam Justice Levers Appearance: - Mr. Jeremy Walton for TMSF - Mr. Duncan Henderson for Mr. Demirel and Mrs. Demirel - Mr. Martin Livingston for Merrill Lynch Bank & Trust Co. (Cayman) Ltd., Fiduciary Services Limited and Merrill Lynch International Bank Heard: 31st October & 2nd November 2006 JUDGMENT Levers, J. ```
This is an application for directions under Section 4 of the Confidential Relationship (Preservation) Law (1995 Revision), pursuant to a notice served in accordance with Order 24, rule 5(4) of the Grand Court Rules. The application has been brought by Merrill Lynch Bank and Trust Company (Cayman) Limited (“MLBTC”), as trustee of the Dolphin Trust and the Mana Trust, Fiduciary Services Limited, as a sole director of Kaffe Limited, Barla Finance Ltd, Cunur Cash Ltd, and Medro Ltd (the “Companies”) and Merrill Lynch International Bank Limited of London (“MLIB”). All those companies are the Applicants. The express beneficiary or settlor with a life interest of the Trusts is Yahya Murat Demirel, a Turkish national. His partner (now wife) Ayse Nur Esenler is an express beneficiary to the Trust. Neither of them have any issue but the default beneficiaries are the issue of either the settlor or Ayse Nur Esenler. MLBTC was also trustee. This however was revoked on the 28 June 1999.
```markdown # Background to the present Application
Kaffee Ltd was incorporated on the 17 June 1999, to hold the assets of the Demirel Trust.
Both Dolphin and the Mana Trusts were established on 28 June 1999. Upon revocation of the Demirel Trust, the shares in Kaffee Ltd were then held by a nominee affiliate in favour of MLBTC, as trustee of the Mana Trust. Three further companies were incorporated to hold the assets of the trust. The Companies currently hold assets in accounts totaling approximately US$23 million. By Writ of Summons dated the 1 December 2005, a Statement of Claim under Cause No. 555 of 2005 ("the Cayman Proceedings") was filed against MLBTC and the Companies upon the application of Tasarruf Mevduati Sigorta Fonu ("TMSF"), a Turkish regulatory authority ostensibly acting as bank assignee. In that case a Disclosure Order and Injunction were made against MLBTC and the Companies and a sum of approximately $30 million dollars has been ```
```markdown frozen. Ancillary proceedings have been brought by TMSF in the Chancery Division of the High Court of Justice of England and Wales against the Settlor, and separately against the Companies, Cartier & Company (English solicitors for the Settlor) and MLIB (the “UK Proceedings”). A Freezing Order against the Settlor and a Disclosure Order were granted on the 6 th and 16 th September in the UK Proceedings. MLIB, as a service provider to the Companies, is an applicant in this instance by virtue of potentially maintaining information in the UK relating to the Trusts, Companies and/or Settlor, which may have arisen in or may have been brought into the Cayman Islands. In both the Cayman and UK Proceedings, TMSF has confirmed that MLBTC has become innocently mixed up in the Settlor’s alleged wrongdoing and merely holds information that is likely to enable TMSF to place funds, or hold property against which the judgments obtained against Settlor miforced. The Parties to the Application ```
```markdown In response to the Cayman and the UK Orders, MLBTC, Fiduciary Services Limited (on behalf of each of the Companies) and MLIB have filed an application for directions under Section 4 of the Confidential Relationships (Preservation) Law (1995 Revision). This was done in Cause No. 584 of 2005. As a result of the settlor (Mr. Demirel) making application to be joined and advising the Court that he intends to file an application to discharge, the Court adjourned that first application under Section 4 by these Applicants to a later date, until after the hearing of the Settlor’s discharge application. Regrettably, that promised application and the Section 4 application have gone little further than when the Court was initially advised that it was intended. Subsequently, MLBTC on behalf of itself and the Companies made an application for directions under section 48 of the Trust Law (2001 Revision), under Cause F 2006 in M 18 under No. 110 of March 200 16. On the 21 June 2006, the Settlor provided certain information, as requested by the Court, and was ordered to be joined as a Defendant to the Cayman ```
```markdown Proceedings. Other applications and orders were made too, but for purposes of this application, the joinder of the Defendant was the most relevant order. On the 28 June 2006, a case management conference was held and at that conference it was brought to the attention of the judge that the Applicants might wish to bring a Section 4 application in relation to documents listed as confidential upon discovery. The judge directed that if Counsel had researched the point and thought it was sufficiently important they should bring that application within 21 days. As no consent was forthcoming, the Applicants filed an Originating Summons to bring a Section 4 application before the Court. No consent was forthcoming till, I believe, a day or two, prior to the listed date for hearing of this matter. It was the Settlor’s decision to give consent to all the documents, save and except for two which I shall describe in detail below. In the circumstances, this Court is left with having to rule only on two documents for this application. two docalso submitted in the appA further ments were absence of ``` The parties to the proceedings and to this application ```
```html 1 2 As stated previously, the Applicants were represented by Maples and Calder, 3 who took a neutral role in this particular application, and set out the matters 4 before the Court for its directions. Mr. Henderson of Walkers represented 5 Mr. Demirel the settlor and the discretionary beneficiary Mrs. Demirel. Mr. 6 Walton represented TMSF, the plaintiff in the Cayman and UK Proceedings. 7 It was Mr. Walton who applied to be heard and the Court ruled that he could 8 be heard. Mr. Walton’s submissions, in part, were based on the fact that 9 there has, in any event, been undue delay in bringing these proceedings and 10 that the bringing of the Section 4 application was unnecessary. He did not 11 dwell on delay but stressed the importance of the Court ruling on the 12 question of the identity of the Relevant Principal in proceedings of this 13 nature. He said, although consent had been given, to grapple with this issue 14 was not purely academic, as the question of Relevant Principal is a live issue 15 in these cases. 16 Section 4 tion 18 17 The Applica 19
Mr. Livingston on behalf of the Applicants argues that the Section 4 application was important and that it is not flawed as alleged by counsel for TMSF. He makes the following points: (1) That the statutory obligation under section 2 of the Confidential Relationships (Preservation) Law, concerning any property which the recipient thereof is not otherwise in the normal course of business authorized by the principal to divulge, is confidential information, as defined under the Act. (2) He says that if one looks at the Act carefully, the Applicants being trustee owe a greater obligation of confidentiality to the persons for whom they are trustees. (3) The question of consent from each of the principals, he readily admits would have obviated the necessity for such an application. However, he says that the common law obligations especially in circumstances where trustees are involved, is not so straightforward and that their duties extend beyond mere statutory obligations. (4) He says more importantly under Cayman law, the trustees have a common law duty of confidentiality and that that duty extends to take in the interest of third parties. He relies on the case of *Re Confidential Relationships (Preservation) Law Application* [1987] CILR 386, at 388, where the Court held that in order to meet the definition of "confidential information" under the Law for the purposes of what is now a Section 4 application, the information must "relate to third persons". (5) He says that the confidential information arises out of that relationship and the trust relationship itself tends to ludes the client or the client would have an interest in protecting.
(6) He also says that a trustee must owe a duty of confidentiality to the beneficiaries, especially where the settlor has not reserved rights or powers under the trust to himself. The Dolphin and Mana Trusts are still in existence. As such, he says, the trustee MLBTC owes both a duty of care and a fiduciary duty to the express beneficiaries thereof, and he says to ignore that duty would be a breach. The position he submits is best summarized by Smellie J. in In the Matter of H [1996] CILR, at 242, he held that: “Of significance also is the true nature of the ownership of the information sought to be extracted by the grand jury’s subpoena. The information is about the assets which are vested in the trustee to be held on trust for the beneficiaries. The trustee therefore owes fiduciary obligations to the beneficiaries not to divulge that information except in accordance with the Cayman law, which governs the trust...Among the beneficiaries are persons (and the deed also contemplates possible remoter beneficiaries) who are in no sense the subject of the grand jury investigations and for those purposes must be regarded as innocent third parties. These are all factors not to be overlooked when considering what directions it is appropriate to give this application...I would conclude that the interests of justice will not be served by the granting of the sanctions requested of the beneficiaries to be recognized so long as the trust is one deemed to be valid under Cayman law. I need not go into what the potential repercussions of unwarranted disclosure may be for the beneficiaries.”
```markdown beneficiaries: Suffice to say that they remain beneficially entitled to that information and may rely on its remaining confidential.” Mr. Livingston submits therefore that as Mrs. Demirel is also an express beneficiary to whom the Applicants owe a fiduciary duty and who would also have an interest in the protection of the information, the Applicants would need to ensure that such duties were met prior to considering disclosure of that information. The context of disclosure in this case warrants analysis. He submits that in the Cayman and English Proceedings, TMSF is disputing the rationale of the Applicants in listing those documents within their possession, control or power as confidential in part three of the schedule on their list. See list attached. He also relies on Smellie CJ’s judgment in In the Matter of H (supra) at page 244: ``` It will try to ob pu contra ``` unwarranted negation of the applicant’s duty of confidentiality owes as trustees to direct that he should give into evidence confidential information in criminal proceedings which as a matter of ```
Cayman law may yet come to be regarded as misconceived." Finally, he submits that the Applicants had to consider more than just the narrow interpretation of the statutory definition of "confidential information" and "principal" under the law. That seeking consent from a third party/beneficiary is only one factor to address and that the fact that the Applicants owing a fiduciary duty is enough to seek the courts direction if not under Section 4 of the law then under section 48 of the Trust Law. Mr. Henderson on behalf of the settlor submits that the law on Relevant Principal is not settled and that it is a matter for the trustees as arbitrators of the documents to make certain decisions. They alone must decide to submit what is relevant and what is irrelevant and that under the common law principles these documents are confidential and should be protected. He supports Mr. Livingston and says that it is proper to seek the Courts directions and relies on the dicta in Re ABC Ltd [1984-85] CILR. He further nits that ie settlor's disclose to the trustees his information coursesness, but is not the decision nation in the
Mr. Walton on behalf of TMSF submits strenuously that the law is designed
to protect third party confidentiality and that:
(1) It is not intended to cut across the fundamental and unchallengeable principle that for the parties themselves confidentiality is no bar to disclosure of relevant documents. He says, the Settlor cannot both participate in the action and then prevent disclosure on the basis of confidentiality;
(2) That by the joinder on his own application to this action, it must be implied that he has given his consent to the relevant disclosure of documents; (See Order 24, rule 5 (3))
(3) That the settlor Mr. Demirel has himself disclosed some of these documents voluntarily on his application to be joined;
(4) That Relevant Principal as defined under the law is, indeed, the settlor Mr. Demirel as he is the author of the letter of wishes and it was he that imparted the confidential information to the trustees;
(5) That Ms. Esenler as a discretionary beneficiary under the Trust is not a Relevant Principal. She did not engage in a business transaction and nor did she impart any confidential information. That none of the listed documents belong to her;
(6) He submits that denial of disclosure by the court would operate as a denial of the right of TMSF in the enforcement of a just claim. He relies on section 4(6) (a) of the Law;
(7) He finally submits that the Court should order disclosure forthwith.
I am w that the must malion if they 2 consent fettlor. Here is comere settlor, but there is a Beneficiary/Beneficiaries to whom they owe a fiduciary
```html 1 duty then application should be made for directions under section 48 of the 2 Trust Law. 3 4 At this stage a brief description of the documents may prove useful: 5 (1) Items 1 to 2 consist of banking documents including account 6 statements and portfolio summaries relating to the settlor's own 7 account; 8 (2) Items 3 to 5 consists of accounts statements and portfolio summaries 9 relating to the Merrill Lynch Companies accounts; 10 (3) Item 6 consist of records of bank transfers into the Merrill Lynch 11 Companies Account; 12 (4) Item 7 consist of medical records relating to Ms. Esenler. 13 14 Before I go into the law and analyse the particular sections that involve this 15 application, it was my understanding, having listened to Mr. Walton's 16 submission that he was questioning the propriety of the Applicants bringing 17 this application before the Court. He spent a considerable amount of time 18 discussing the question of the need for such an application. It now 19 transpires, as a result of Mr. Livingston on behalf of the Applicants 20 subr itten sub on this l 21 writing that he does not make any criticism of the propriety or bona fides of 22 the applicant's decision to make this application, nor indeed is TMSF ```
1 seeking a cost order against the Applicants. It comes as somewhat of a 2 surprise to this Court especially in view of the submissions made during the 3 hearing. It therefore leaves me now to answer the limited issues of: 5 (1) Whether two documents in the applicant’s possession and Items 6 and 6 7 of Part III Mr. Demirel lists of documents should be disclosed (the 7 Settlor having consented to all others) namely the four documents 8 previously referred to: 9 (2) For that purpose identity of the Relevant Principal. 11 Section 4 of the Confidential Relationships (Preservation) Law reads: 13 (1) Whenever a person intends or is required to 14 give evidence in, or in connection with, any 15 proceeding being tried, inquired into or 16 determined by any court, tribunal or other 17 authority (whether within or without the 18 Islands) any confidential information within the 19 meaning of this Law, he shall before so doing 20 apply for directions and any adjournment 21 necessary for that purpose may be granted. 22 (2) Application for directions under subsection (1) 23 made to the Court and determined 24 by a Judge of the Court shall be, and be 25 given to the Attorney General and, if the Judge so orders, to any 26 person in the Islands who is a party to the 27 proceedings in question. The Attorney General
may appear as amicus curiae at the hearing of any such application and any party on whom notice has been served as aforesaid shall be entitled to be heard thereon, either personally or by counsel.
(3) Upon hearing an application under subsection (2), a Judge shall direct-
(a) that the evidence be given;
(b) that the evidence shall not be given; or
(c) that the evidence be given subject to conditions which he may specify whereby the confidentiality of the information is safeguarded.
(4) In order to safeguard the confidentiality of a statement, answer or testimony ordered to be given under subsection (3) (c), a Judge may order-
(a) divulgence of the statement, answer or testimony to be restricted to certain named persons;
(b) evidence to be taken in camera, and
(c) reference to the names, addresses and descriptions of any particular persons to be by alphabetical letters, numbers or symbols representing such persons the key to which shall be restricted to persons m.
(5) Every person receiving confidential information of such information had been entrusted to him in confidence by a principal.
```markdown (6) In considering what order to make under this section, a Judge shall have regard to: (a) whether such order would operate as a denial of the rights of any person in the enforcement of a just claim; (b) any offer of compensation or indemnity made to any person desiring to enforce a claim by any person having an interest in the preservation of secrecy under this Law; and (c) in any criminal case, the requirements of the interests of justice. (7) In this section, unless the context otherwise requires: - "court" bears the meaning ascribed to it in section 2 of the Evidence Law; - "given in evidence" and its cognates means make a statement, answer an interrogatory or testify during or for the purposes of any proceedings; and - "proceeding" means any court proceeding, civil or criminal and includes a preliminary or interlocutory matter leading to or arising out of a proceedings. ```
```markdown (1) "business of a professional nature" includes the relationship between a professional person and a principal, however the latter may be described; (2) "confidential information" includes information concerning any property which the recipient thereof is not, otherwise than in the normal course of business, authorized by the principal to divulge; (3) "Normal course of business" means the ordinary and necessary routine involved in the efficient carrying out of the instructions of a principal including compliance with such laws and legal process as arises out of and in connection therewith and the routine exchange of information between licensees; and (4) "principal" means a person who has imparted to another confidential information in the course of the transaction of business of a professional nature. Mr. Walton submits that the sixth defendant Mr. Demirel is holding on to an untenable argument. He says that it is entirely artificial to say that the bank is the Relevant Principal when it comes to bank documents. He submits that it must be Mr. Demirel who is the Settlor because neither the bank nor the discretionary beneficiaries have imparted any information to set up the relationship. Two cases that are of some importance in this context. In the matter of H. (supra), Justice Smellie (as he was then) held that the applicant formally had, upon misent or true confidential information, appointed trustee, on in the course of business of a professional nature within the meaning of s.2 of the Confidential Relationships (Preservation) Law (1995 Revision). He had ``` This text is a transcription of the content visible in the image, maintaining the original structure and terminology.
properly applied under section 4 for the Court's direction. There had been
no consent to disclosure from the trust companies holding the assets, nor any
valid consent from H (Snr) who was under threat of a sanction from the US
courts.
It was against public policy, he said, to allow the disclosure of the
information whilst the legal challenge to the validity of the trust was
pending. To do so would be in breach of the applicant's duty to the
beneficiaries if the trust were declared valid. At page 241, in the body of
the judgment, he said that:
"The subject-matter of this application being trust property (which term includes "all documents and things evidencing or relating thereto" under s.2 of the Law), another arguable view is that the applicant, as trustee, is his own principal. Even if this latter view is the true nature of the relationship between the applicant as trustee and the assets of the trust, I may not overlook the meaning of the statute. That meaning places the applicant in the position of a person to whom confidential information imparted in business transactions of a professional nature through the companies settlor) has been others (and the trust) succession to trusteeship. The situation comes squarely within s.2 of the Law and thus requires that the applicant be regarded as a recipient of confidential information for the purposes of the
Law. And trustees have in the past been regarded as requiring directions from this court under the Law before they might divulge in evidence information in respect of their trusts—see *In re Confidential Relationships (Preservation) Law, s. 3A (5).* As I read that section his finding is that the settlor of the trust and not the trustee is the Relevant Principal. The beneficiary is not regarded as a relevant principle. In the *Attorney General v Bank of Nova Scotia [1985] CILR*, Summerfield CJ said: “Even if it did not constitute a valid “consent” for the purpose of section 3 (2) (b) (i), the consent directive to be signed by Mr. Y would not be proper authority for the disclosure of X Ltd’s accounts, since he was not and never had been a “relevant principal” within the terms of that subsection but only a signatory of its bank account. Until X Ltd. was struck off the register, the “relevant principal” in relation to its accounts was the company itself acting through its directors or officers to authorize disclosure. Since the company was now defunct, there was no “relevant principal” empowered to authorize disclosure and disclosure could therefore be effected only by one oer proces by Cor Rins (Presidential aw.”
Mr. Walton submits that the bank could not be the Relevant Principal and
that it does not depend on ownership but it depends on who imparts the
confidential information. 4.
Section 4 (1) of the Law makes it quite clear that any person who is required
to give in evidence or indeed intends to give evidence in connection with
any proceedings being tried, shall before so doing (divulging confidential
information) apply for direction. In other words, it is a mandatory
requirement, before divulging confidential information, save and except in
certain exceptional circumstances which are listed in section 3 (2) of this
Law. One of those exceptions is when a professional person is acting in the
normal course of business or with the consent expressed or implied of the
Relevant Principal. 14.
In this case, the Settlor has given consent to all the documents being
divulged, save and except for two documents on which the Court must rule.
The section of this Law states in son
definition of this Law means a person
who has imparted to another confidential information in the course of the
transaction of business of a professional nature. In the present application
```html 1 this Court is concerned with these words. 2 There is no doubt that the 3 information being sought in this matter is confidential information that was 4 imparted by a person in the course of business. Dependent on the 5 relationship between the parties in doing business will be the identification 6 of the Relevant Principal. I agree with Mr. Walton that the meaning of the 7 words in a statute must be given effect. The word “impart” cannot be 8 substituted by the words “relating to”. 9 In other words, the Relevant 10 Principal is one who has the knowledge and who is in a position to give that 11 knowledge to the bank. Suffice to say that if the trustees, for example, or the 12 bank then relinquishes its position and gives that knowledge to some third 13 party then the bank in certain circumstances could be construed as the 14 Relevant Principal. In this case, it is clear that all the parties considered Mr. 15 Demirel the relevant principal, and requested his consent in disclosing the 16 documents, which as I stated previously was given. But that leaves the 17 question of whether the discretionary beneficiary Mrs. Demirel can be 18 considered a Relevant Principal. It is my view, that she cannot be a 19 concerned. However, in the circumstances of this case, it appears to me it 20 would be departing from the meaning of this statute if one was to hold that a
beneficiary who did not set up the trust, who did not have initial knowledge,
who cannot give instructions to the trustees can be said to be a Relevant
Principal. It is my view that where there is a settlor and a beneficiary, it
must be the settlor who is the Relevant Principal. On the facts of this case, Mr. Henderson also argues that as the bank
produces the document, it can be that the bank is the Relevant Principal and
as the bank distributes the information in the normal course of business it
can be said to be the Relevant Principal. I disagree. The law if interpreted
properly leads one to the conclusion that the source of the initial information
is the relevant principal, i.e the settlor of a trust. To state that because a
bank reproduces the information that is given to it based on either
instructions or knowledge it can be said to be a Relevant Principal is with
respect not a sound submission. The court when exercising its discretion as to whether it should divulge this
information several factors. The inter
nterest of the
Public policy is another factor. But for purposes of deciding who the
Relevant Principals are, these are not factors to be taken into account. In
```html 1 applying the general principals and the exceptions, the fact that a vehicle has 2 been empowered to hold an asset cannot turn that into a relevant principal. 3 The Court finds therefore as follows: 4 5 (1) That the application under Section 4 has been properly brought, 6 because the trustees are in a position of owing a fiduciary duty; 7 (2) In the circumstances they are duty bound to bring an application of 8 this nature prior to disclosing the information; 9 (3) That the Relevant Principal in this matter must be Mr. Demirel 10 who has given his consent to the majority of the documents being 11 released, save and except for two. The court has already ordered 12 disclosure of those documents; 13 (4) The Applicants are parties to the action and in those circumstance 14 the court has jurisdiction to order disclosure and the court also has 15 jurisdiction to give directions as to the divulging of the confidential 16 information in the hands of the Applicants. Indeed under Order 17 24, rue consent and it is only if it is 18 other relevant person the doctor one 19 that a section 4 application is required; ```
(5) I now turn to Items 6 and 7 of Part III Cause No. 447. I order disclosure of the item 6 documents. Any third parties' accounts or names must be redacted. I hold that the correspondence and medical records relating to Ayesnur Eslenler Demirel, as I see it, are irrelevant to these proceedings and do not order disclosure of those; (6) I also order disclosure of the client profile of the International Banking Group, and the Contact Report Private Banking Group in relation to the Applicant's list of documents; (7) The disclosed information is not to be used for any purpose, save and except, the Cayman and the English proceedings; (8) Plaintiff is released from its undertaking not to use the documents disclosed in these proceedings for any collateral or other purpose. For purposes of the English Proceedings, I declare that the Second to Fifth Defendants have complied with their disclosure obligations in the proceedings by virtue of directions given by the Court under the Cal Relatioervation) Law; 1) The fation by I charged (First applic Merrill lis
```html 1 On the question of costs, I would wish to have all parties address me or 2 submit written submissions. The matter was not canvassed during the 3 course of the application; I therefore will not make any order at this stage. 4 5 Dated this 12th day of December 2006 6 7 8 Judge of the Grand Court