Offshore trusts and private client confidentiality

The maintenance of confidentiality of personal information is occasionally at or close to the top of the agenda for private clients, particularly those who live their lives in the public eye. However, management of such a client’s image is only half the battle in a changing world where freedom of access to information via the internet and technological developments like social media have made an indelible mark on our lives. 

We are blessed with Facebook and Twitter; internet forums and chat rooms. There are also drawbacks – we hear of proxy servers; embedded data; internet piracy and computer hacking; cyber squatting and cyber bullying; website counterfeiting; phishing; blogging; spam: a whole new vernacular. Neither can we forget that once a message or a document or a photograph is online, it is probably there in perpetuity.

The idea of there being a permanent record of celebrity embarrassment might be mildly amusing when we open our Sunday newspapers, but the new lexicon has been devised to describe profound changes in the operation of the world in which we live. We are truly in the midst of the digital age and it is almost impossible to participate fully in the world today without opting into it. While the mantra is that “information is king” and “transparency” the new watchword for compliance with international legal and regulatory standards, is there any way that a balance can be maintained among these conflicting demands?

Whatever the pros and cons of the debate about how freedom of expression should be balanced with a right to privacy, how access to information for educational purposes should be balanced with prevention of access for children to unsuitable websites, how freedom of access to the internet should be balanced with the need to police its use in the fight against international crime, the internet is here to stay. In the current climate therefore, is there really such a thing as a reasonable expectation of privacy in the context of a private client trust?

We are faced with a new world order where the increasing emphasis is on freedom of access to and exchange of what was once regarded as confidential financial information and this drive to greater financial transparency has a number of implications for the further development of the law of private client confidentiality. The Chief Justice of the Cayman Islands Anthony Smellie QC described it in this way in his keynote address to the Mourant Ozannes’ International Trusts & Private Client conference in the Cayman Islands in October 2012:

“Duties of confidentiality, as part and parcel of the duties of loyalty and good faith, are necessary incidents of a fiduciary relationship, a relationship established by duties which come from the wellspring of equity; from the obligations, policed by the courts of equity, to hold identified property for the benefit of others. These obligations, forming part of the moral code which governs fiduciaries, are the hallmarks of personal relationships of ‘trust and confidence’, underpinned by the solemn obligation of the professional or entrusted person to respect the privacy of those whose interests he must protect. This is an idea with deep roots in the common law of both England and the United States of America”.

Yet we and those who govern us have achieved unprecedented freedom to access and exchange information over the last decade: across borders, between regulators, amongst financial institutions and more recently, between the fiscal agencies of different nations.

The OECD Secretary-General’s progress report on behalf of the Global Forum on Transparency and Exchange of Information for Tax Purposes delivered to G20 leaders on September 5 and 6 this year, illustrates clearly how far the Cayman Islands have come in terms of financial transparency and meeting increasingly exacting international standards of cooperation in the automatic exchange of information. Of the ratings criteria under which 94 nations were assessed during the different phases of the peer review, the Cayman Islands were considered to have been given a ‘green light’ under every heading, most notably unlike the U.S. and the U.K. who were each considered to have had shortcomings in their policies and procedures which led to ‘amber’ ratings under either one or in the case of the U.S., two, headings.

That report was supplemented by final ratings published by the Global Forum at their meeting in Jakarta on November 22, 2013, in which Cayman, along with Jersey, Guernsey, the U.S. and the U.K., was considered ‘largely compliant’ with the OECD’s international standards on transparency and exchange of information.

With only rare exceptions, private clients and their families wish to conduct their affairs lawfully and to meet international standards of reporting and compliance. They are prepared to accept what is required from them in order to co-operate in wider community efforts to prevent crime and fight international terrorism. That is not to say, however, that privacy concerns have completely disappeared. Privacy of personal information whether it relates to their physical person, religion, sexual orientation, political affiliation, medical, domestic circumstances or their children remains for many a reasonable expectation.

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Broadly speaking, in the context of a family trust, a client’s privacy concerns are usually twofold: (1) how can they ensure that their private personal information, imparted to trustees in the Cayman Islands to assist them in the proper administration of their family trust is kept private in legitimate circumstances; and (2) if the trustee has to go to court, how public will the proceedings be? 

In the Cayman Islands, the common law duty of confidence which exists between a trustee on the one hand and its beneficiaries on the other, as per Heerema v Heerema [1985-86] JLR 293 for example, is supplemented and given statutory force by the Confidential Relationships (Preservation) Law (2009 Revision) (the CRPL). The CRPL criminalizes the unauthorized disclosure of confidential information relating to business of a professional nature arising in or brought into the Islands. 

Section 5 of the CRPL makes it a criminal offence for anyone who is in possession of confidential information to divulge it or attempt, offer or threaten to divulge it, without the consent of the principal or willfully to obtain or attempt to obtain confidential information.

“Confidential information” is defined as information concerning any property which its recipient is not, otherwise in the normal course of business, authorized by the principal to divulge; the “principal” being the person who imparts the confidential information in the course of business of a professional nature. The “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 arise out of and in connection with those instructions.

The definition of “property” in the CRPL is of note for trustees and beneficiaries as it includes every present, contingent and future interest or claim, direct or indirect, legal or equitable, positive or negative, in any money, money’s worth, realty or personalty, moveable or immoveable, rights and securities over that property and all documentation which would evidence or relate to it. Accordingly, a beneficiary’s interest in a trust would be captured by this definition and all trust related documentation which evidences or relates to it is, prima facie, confidential.

Section 3 states that the CRPL applies to all confidential information with respect to business of a professional nature which arises in or is brought into the Islands and to all persons coming into possession of such information at any time after that, whether they are within the jurisdiction or outside it. This is of particular importance for trust administrators who may be responsible for the administration of a Cayman Islands’ trust but who may be located in a jurisdiction outside of the Cayman Islands.

A trustee’s common law duty of confidence owed to its beneficiaries, as supplemented by the CRPL in the Cayman Islands, should therefore provide comfort to those for whom it is a legitimate expectation that personal information, imparted to trustees in the Cayman Islands, is kept private.

What then of legal proceedings involving trusts? Open justice has long been a central principle of English common law and as Lord Haldane put it in Scott v Scott [1913] AC 417,
“In public trial is to be found … the best security for the pure, impartial, and efficient administration of justice, the best means for winning for it public confidence and respect.”

The position is of course the same in the Cayman Islands; the public administration of justice hand in hand, with what the Chief Justice in Re W [2004-2005] CILR 554 described as “the orderly development of the law and practice,” requires judgments of the Cayman Islands’ court to be freely available for all to see.

Although I am not aware of the use of a super-injunction here in the Islands as utilized in the U.K., most notoriously on two occasions by two different Premiership footballers concerned to keep details of their private lives out of the newspapers, there are circumstances in which the court will take steps to protect the identity of the parties to litigation here and to limit the publication of any judgment or orders made in the proceedings. While there certainly has not been “an efflorescence of anonymity orders” (as per Lord Rodger in Guardian News & Media Ltd [2010] UKSC 1) the courts here are accustomed to dealing with trust related cases and so, on occasion, with highly sensitive information.

Trustees are entitled to apply to court under s48 of our Trusts Law, currently in its 2011 Revision, for advice or directions on any question relating to the administration of trusts. As the Chief Justice put it in A v Rothschild Trust Cayman Limited [2004-2005] CILR 485: 
“It is a jurisdiction to which resort has been taken in a number of different circumstances and while its boundaries have never been defined by the court, it has, from the decided cases, clearly come to be regarded as a remedial jurisdiction, for orders to be made as the justice of the case deserves.”
It is well established that this jurisdiction extends to applications in relation to the propriety of revealing otherwise confidential information about a trust, as per In the matter of Merrill Lynch Bank & Trust Company (Cayman) Limited [2006] CILR Note 33.

The jurisdiction for making anonymity orders is clearly set out in a Grand Court Practice Direction published in 1997 in relation to the confidentiality of Chambers hearings, which would include most trust related matters. The publication of information relating to proceedings before the court sitting in private will be a contempt of court in a number of specified circumstances or where the court having power to do so expressly prohibits the publication of all information relating to the proceedings. The court may therefore be asked to make anonymity orders for example, where there are issues of commercial confidentiality, or questions of personal security and fear of kidnap, or where there are minor beneficiaries and significant sums of money involved, or in relation to issues of incapacity where there will be reference made to medical reports and sensitive personal information.

The court may allow a third party to access the court file if they can demonstrate a sufficient interest in the proceedings and if the interests of justice allow but similarly, if good reasons are made out, the court will restrict access to the court file, even to parties to the action as in the Saad Investments case in 2011.

It is clear therefore that while there is no doubt about the relentless drive towards ever greater levels of financial transparency in the world in which we live today, there remain ways for those who are legitimately concerned about the privacy of their personal information, to achieve and maintain confidentiality, even in court proceedings involving their family trust.

 

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