By way of update to our eAlert of 16 May, we can report that with the gazetting and immediate entry into force of the Confidential Information Disclosure Law, 2016, the Confidential Relationships (Preservation) Law of the Cayman Islands has today been repealed.
The Confidential Relationships (Preservation) Law was originally enacted in the 1970s, when Cayman as a financial centre was in its infancy. In essence, all it did was to overlay criminal penalties on disclosures of confidential information that in most cases would have been actionable by civil proceedings in any event. However, in the 40 years of its existence, no-one was ever prosecuted, and the only provision that was commonly used was section 4, which enabled a person who intended or was being required to disclose confidential information in evidence in proceedings (whether in Cayman or elsewhere) to apply for the approval of the Court to do so. Nonetheless, its existence was often relied upon, in particular by those pursuing a political agenda hostile to international financial centres, as evidence that Cayman was a 'secrecy' jurisdiction. For this reason and because it was notoriously difficult to interpret with certainty, its repeal is to be welcomed.
The new Confidential Information Disclosure Law essentially returns the whole area of liability for breach of confidence to the realm of the common law and rules of equity – the position in the UK and most common law jurisdictions. But importantly, it retains the mechanism for seeking court approval for disclosure. This is a distinct feature of Cayman Islands law that does not exist in most other common law jurisdictions. Although the common law defences to an action for breach of confidence, such as acting under compulsion of law, are well established, they do not cover all the circumstances in which disclosure may be appropriate or necessary in practice. For example, where the obligation to disclose arises under foreign law, rather than domestic law, the holder of the information may not be protected by the common law 'compulsion of law' defence. In particular if it is a business with operations in the foreign country imposing the requirement it might, absent such a mechanism, find itself in a difficult position. Moreover, there are situations where a person intends to make disclosure (e.g. to protect his own interests) but is not actually being compelled to do so. A court direction authorising disclosure will thus provide protection that would not be available otherwise.
Even under the old law, disclosure in numerous contexts was already expressly permitted, including responding to statutory notices from the Cayman Islands financial services regulator, both for its own purposes and for onward transmission to overseas regulators; providing information to the police investigating offences and under mechanisms for international co-operation in criminal matters; producing information to the Tax Information Authority under a notice issued on the request of an overseas tax authority; and filing anti-money-laundering suspicious activity reports or reports under anti-corruption legislation. The new Law preserves and enumerates these and various other circumstances in which disclosure is specifically allowed, although for the most part they are cases where the well-established common law defences to disclosure would apply. Given the removal of the criminal component of the regime, this and certain other aspects of the Law are arguably unnecessary and run the risk of creating uncertainty by replicating matters that are already sufficiently dealt with by the common law, without seeking to codify it fully. Moreover, some of the less than ideal definitions and terminology have unnecessarily been carried over from the old law. Before the Law was passed, Appleby had been in communication with the relevant Ministry and had proposed drafting amendments to avoid these issues. We understand that although these were accepted in principle, legislative timing did not permit their incorporation at this time and that they will be addressed in a subsequent round.
The new Law also introduces a 'whistle-blower' defence for disclosures made in good faith evidencing wrongdoing, a serious threat to the life, health or safety of a person or a serious threat to the environment. This is consistent with a more general move towards protecting public interest disclosures.
Until the Law is amended, points to look out for include in particular the consequences of a less than ideal definition of confidential information, carried over from the old legislation. Because the concept is defined in terms to the effect that it 'includes' information relating to property (but without saying what else it includes), it is not clear how far, if at all, the Law applies to any confidential information that does not concern property. Much of the law is concerned with protecting what might be called "appropriate disclosure" of confidential information. But the unhappy definition of confidential information may mean that the law does not achieve this object in relation to any information that does not concern property. That would mean that there was a whole swathe of material whose disclosure the court could not authorise under section 4. It also means that the whistle-blower protection may not bite on disclosures of confidential information that do not concern property.
The law also contains a restricted definition of the normal course of business. That matters because the law sets out to permit disclosure of confidential information in the normal course of business, an exception that of course goes beyond established common law defences to breach of confidence. However, because the law limits the normal course of business to what is involved in carrying out instructions from the person owed the duty of confidentiality, the protection is of limited practical value. In most cases the disclosure will have been authorised by the simple fact of being a necessary part of performing the instruction and the law does not achieve its apparent object of enlarging the circumstances in which disclosure is permitted.
There are no transitional provisions, but given the complete and immediate repeal of the old Law and consequent immediate elimination of criminal liability, they are not necessary. Any pending disclosure now falls to be considered under the new Law. Any pending application for directions under the old law will become unnecessary in any case where any common law defence to breach of confidence would apply, and can be withdrawn. In situations where that is not clearly the case, the application should be re-issued under the new Law.
The common law and equitable principles on the question of disclosure and confidentiality, for so long overshadowed in the Cayman Islands by a somewhat problematic statute, and often (wrongly) overlooked as a result, will from now on need to be at front and centre of legal advice.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.