When litigation looms large on the horizon, a party anticipating being caught up in court proceedings can be concerned to ensure that their personal affairs or other sensitive information will not be unnecessarily exposed. In that context, the need for privacy often goes well beyond a wish to avoid the intrusions of inquisitive third parties; in some circumstances, there can be very real risks to respondents or defendants if their personal details become widely known, and parties may be well within their rights in seeking to preserve confidentiality in the long term. The need for protection from the courts against the consequences of disclosure of information has recently been dealt with by the Grand Court of the Cayman Islands in two different contexts.
Confidentiality in trusts litigation
In the case known as In the Matter of a Settlement dated 16 December 2009 a trustee of a Cayman Islands trust had sought the Grand Court’s blessing for certain decisions and proposed actions by the trustee. However, in advance of the main action being formally issued, the trustee made an ex parte application pursuant to which it sought confidentiality orders on three main grounds:
That such orders were necessary to protect actual and contingent beneficiaries of the trust from the personal safety risks of being publicly linked to the substantial wealth associated with the trust;
That, as certain beneficiaries had been revocably excluded as beneficiaries of the trust, there was no useful purpose in apprising them of a mere expectancy that they might benefit under the trust at some point in the future;
In any event, the adult beneficiaries did not wish the minor contingent beneficiaries to become aware of their family’s link to substantial wealth for fear that it would adversely affect their personal development.
Justice Ian Kawaley agreed that confidentiality orders were appropriate in the circumstances of that particular case. While the concerns raised by the trustee were “generic concerns often expressed in similar applications” made in Cayman, the judge nonetheless considered that it was because of their familiarity to the Grand Court that those concerns were both cogent and credible. The judge also acknowledged that it is increasingly common for persons who have accumulated significant wealth to wish their children to live, as far as possible, “ordinary” lives and to be left unaware of the scale of wealth to which family members potentially have access. Security issues were also taken into consideration, with the judge noting that substantial wealth can give rise to serious personal safety risks.
In reaching a final decision in respect of the trustee’s ex parte application, the judge was required to carefully balance the principle of open justice and the rights of privacy – both of which are constitutionally protected under Cayman Islands law. Section 7 of the Cayman Islands Constitution records, among other things, that everyone has the right to a fair and public hearing in their determination of his or her legal rights and obligations, and that all proceedings instituted for the determination of any civil right or obligation shall be held in public. However, it is open to the court to hold private hearings in circumstances where publicity would prejudice the interests of justice, or where the welfare of minors or the protection of the private lives of persons concerned in the proceedings is warranted. The “public hearing” requirement is therefore not an absolute one and subject to these exceptions.
The court acknowledged that private hearings may take place in the circumstances anticipated by the constitution. The court noted that, in the trusts law context, the need for transparency will be strongest where persons linked to the trust are subject to tax or regulatory proceedings, or the sources and “concealment” of their wealth are matters which are already the subject of media scrutiny. However, in this case, the judge was satisfied that there was no public interest in open justice which outweighed the countervailing interests of protecting the welfare of minor beneficiaries, protecting the private lives of adult beneficiaries, and generally protecting the trustee’s ability to “peaceably holding and administer the trust assets.” On this occasion, the private lives of the beneficiaries of the trust were protected from the prying eyes of the public.
Confidential information and Norwich Pharmacal orders
Confidentiality of information is an issue not just limited to private individuals: corporate entities may also be asked to produce information in the course of more general litigation. There are a number of procedures in the Cayman Islands which enable a party to obtain disclosure of documents and information from the other party in advance of a trial and obtaining “Norwich Pharmacal” orders is just one of these.
As a general rule of civil procedure, an action for discovery or disclosure will not lie against a person against whom there is no reasonable cause of action, or who is a mere witness.
However, this rule does not apply where an action could not be commenced against the wrongdoer without discovery of the information sought, or where the person against whom discovery is sought has become involved (although innocently) in the wrongdoing. A Norwich Pharmacal order, named after the judgment in Norwich Pharmacal Co. v Customs and Excise Commissioners in which such orders were first made, allows for pre-action discovery against a non-party. Such orders have been made relatively regularly by the Grand Court but require careful consideration against local conditions and legislation.
In the notable recent decision in Discover Investment Company v Vietnam Holding Asset Management Limited & Anr (Discover) the court explored the relationship between the regime under the Confidential Information Disclosure Law 2016 (CIDL) and the jurisdiction to grant orders for disclosure pursuant to the Norwich Pharmacal line of cases. In Discover, the applicant sought to use the Norwich Pharmacal regime as a method of seeking information in relation to suspected payments by the respondents of monies that constituted undisclosed/secret profits by a former director of the respondent. The applicant was intending to deploy the information it obtained in potential claims for breach of fiduciary duty against that former director. However, the respondents were subject to contractual duties of confidentiality in respect of the information (owed to an entity that had received the payments in question) which pointed towards the possible need for a preliminary direction under section 4 of CIDL in order to authorize disclosure.
If granted, a section 4 direction can insulate a disclosing party from an action for breach of confidence from the principal to whom the duty of confidence is owed, in the absence of consent by the principal. The downside is that such a direction requires a separate court application to be made, on notice to the attorney general of the Cayman Islands, who is entitled to appear as amicus curiae in place of the party whose confidential information is in issue. In Discover, the court found that no section 4 direction was in fact necessary in the circumstances. It based its conclusions upon:
section 3(1)(j) of CIDL, which provides a defense to an action for breach of confidence where the information is disclosed “in accordance with, or pursuant to, a right or duty created by any other Law or Regulation“; and
section 3(2) of CIDL, which provides a defense to a person who discloses confidential information “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.”
The information sought in Discover concerned details of the very payments that constituted the secret/undisclosed profits by the former director, so the section 3(2) CIDL defense was directly applicable. It was also relevant that the parties who would need to seek the section 4 direction were already before the court.
As to future cases, it will be interesting to see how broadly the court casts the availability of the section 3(1)(j) CIDL defense. The court recognized in the Discover judgment that section 11(1) of the Grand Court Law 2015, which is the statutory footing for the court’s jurisdiction to grant Norwich Pharmacal orders (and indeed interlocutory relief generally), constituted another “law or regulation” for the purposes of the availability of the statutory defense. If the court takes an expansive view, it may mean that section 4 directions are unnecessary in any scenario where the court has made a disclosure order using its powers under section 11(1) of the Grand Court Law. This would have distinct practical advantages where the parties who would otherwise have to make a separate court application for a section 4 CIDL direction are already before the court.
These recent judgments make it clear that the Grand Court has an important role to play in guiding individuals and corporate entities as to their rights and duties under Cayman law, as well as the extent of the protections open to them, whether as innocent parties caught up in ongoing litigation or active litigants seeking the Grand Court’s assistance to proceed without risk. Further judgments contributing to the evolution of this guidance, in both contexts, are expected throughout 2019.