Trustees and confidentiality has long been a central theme in the fiduciary relationship of trust and confidence which exists between a beneficiary and a trustee. One of the most notable changes to our local legislation recently is therefore in relation to our confidentiality statute. There has not been any substantive change from the prior iteration (with one major exception), but it is another example of the way that we are becoming encouraged to regulate accessibility to personal, and what until very recently would have been regarded as private, information.
One consequence of the drive to increase financial transparency and maximize tax revenues has been an increasing focus on the so-called “secrecy jurisdictions,” a category in which the Cayman Islands has been included by our critics. One reason for this, they argued, was our Confidential Relationships (Preservation) Law or CRPL, pursuant to which a breach by disclosure of confidential information about property outside the “normal course of business” and without the consent of one’s “principal” would, potentially, carry criminal penalties ranging from fines to imprisonment.
That this gives statutory force, among other things, to a common law duty which a trustee already has to its beneficiaries, did not sit well in the new international landscape, exacerbated at least in part by the threat of criminal sanction for a breach of that duty. Consequently, it was decided to repeal the CRPL, and in July of last year a new statute came into force, the Confidential Information Disclosure Law (“CIDL”), emphasizing the disclosure rather than preservation of confidential information.
Broadly, the CIDL modernizes the approach to confidential information in the Cayman Islands and illustrates Cayman’s commitment to respect for personal privacy, but within a framework acknowledging its obligations in the fight against international crime and consistent with its commitment to the automatic exchange of information. It abolishes the criminal sanctions and creates a statutory framework for the common law duty of confidence, setting out the circumstances in which disclosure of confidential information is permitted.
What is confidential information for the purposes of the CIDL? For trustees, confidential information is information which arises in or is brought into the Islands concerning “property” of a “principal” to whom a duty of confidentiality is owed. Important to the operation of the statute in practice is the “normal course of business,” that is, “the ordinary and necessary routine involved in the efficient carrying out of the instructions of the principal.” The principal in a trust context, depending on the circumstances, is likely to be a beneficiary, settlor, protector or enforcer.
It’s confidential information about property, so what property are we talking about? It is defined as “every present, contingent and future interest or claim, direct or indirect, legal or equitable, positive or negative, in any money, moneys worth, realty or personalty, movable or immovable, rights and securities thereover and all documents and things evidencing or relating thereto.” This is a wide definition of “property” likely to encompass a wide range of confidential information in a trusts context.
But what are the exceptions? When can a trustee disclose confidential information without fear of breaching the statute? Many of the exceptions are retained from the CRPL, that is, there is no breach of the duty of confidence if disclosure is made:
(a) With the prior consent of the principal or in the normal course of business;
(b) In compliance with requests by a regulator or local law enforcement, e.g. the Cayman Islands Monetary Authority (CIMA) or the police;
(c) Pursuant to international requests from overseas regulators through CIMA or the court;
(d) In the investigation of a criminal complaint to a police officer with the rank of inspector or above in relation to a crime alleged to have been committed in the Cayman Islands;
(e) To the Financial Reporting Authority under the Proceeds of Crime Law or the Terrorism Law;
(f) To the Anti-Corruption Commission under the Anti-Corruption Law;
(g) In compliance with the direction of a Judge of the Grand Court; or
(h) In accordance with any other right or duty created by any other Law or Regulation, for example pursuant to the Common Reporting Standard or anti-money laundering regulations.
Interestingly, there is one new exception permitting the disclosure of confidential information “on wrongdoing” or where there is a “serious threat to life, health, safety of a person or in relation to a serious threat to the environment, shall have a defence to an action for breach of the duty of confidence, as long as the person acted in good faith and in the reasonable belief that the information was substantially true and disclosed evidence of wrongdoing, of a serious threat to the life, health, safety of a person or of a serious threat to the environment.”
This effectively reinforces the concept of a “whistleblowing” defense in Cayman Islands law consistent with disclosure in the public interest. As for penalties for a breach of the duty of confidence, there are no express provisions so the court will apply common law and equitable rules.
One final important point for trustees to remember: the CIDL does not remove the obligation on trustees or any other person who owes a duty of confidence, to seek directions from the Grand Court before they give evidence in or in connection with any proceedings “being tried, inquired into or determined by any court, tribunal or other authority whether within or without the Islands and the evidence consists of or contains any confidential information within the meaning of the Law” if the giving of that evidence would involve provision of otherwise confidential information without the permission of their principal.
The giving of evidence includes making a witness statement or affidavit, testifying during a hearing, producing documents, deposition or answering interrogatories. This will have relevance for trustees who may be joined to overseas divorce proceedings, for example, and directed to provide confidential information or documentation to the parties in the divorce and do not have the consent of their principals to disclosure. This may also have relevance for example to trustees who wish to disclose confidential trust documentation in the context of an overseas arbitration and do not have the consent of the relevant principal or as may be the case on occasion, the relevant principal is, for example, a patient, and cannot give consent for themselves.
It remains a matter for the discretion of the Grand Court as to the manner in which that information is provided. The court will have regard to whether such restrictions would deny the rights of an individual in enforcing a just claim, so bearing in mind the rights of the claimant, whether any offer of compensation or indemnity has been given and generally, whether disclosure would be in the interests of justice.
It is likely that as in previous cases, trustees will combine an application to court pursuant to the CIDL, with an application for directions pursuant to section 48 of the Trusts Law (2011 Revision). A trustee’s “principal” for the purposes of the CIDL is likely to be the settlor as the person who has imparted the confidential information to the trustee, but as the trustee is a fiduciary who has a duty to preserve and administer the trust property for the benefit of the beneficiaries, an application for directions as to the propriety of disclosure of confidential trust information and documentation pursuant to section 48 of the Trusts Law is likely to be required as well.
The changes to Cayman’s confidentiality statute are only part of the wider negotiation and cooperation with the OECD and international law enforcement and, as I mentioned in my last column, this includes a commitment to introduce a new Data Protection Law (DPL). While the DPL is still in draft, there are aspects of its application which will have implications on the trusts business in the Cayman Islands and so I look forward to discussing those in my next article.