Cayman Islands: Confidential Relationships (Preservation) Law (2009 Revision)

Last Updated: 17 December 2014
Article by Benjamin Tonner

Introduction

Confidentiality of business dealings is strictly observed in the Cayman Islands.1 It is governed by both the common law and statute.

At common law, the general equitable duty of confidentiality applies to information coming to the knowledge of a person in circumstances where it would be unconscionable for the recipient to disclose it (Attorney General v Observer Ltd [1990] 1 AC 109).

This short memorandum is concerned, however, not with the common law but rather with the statutory provisions of the Confidential Relationships (Preservation) Law (2009 Revision) ("CRPL" or "the Law").

Background

The CRPL was enacted in 1976 to protect the privacy of legitimate business relationships and strike a balance between confidentiality and acceptable levels of transparency.

The CRPL codified the common law duty of confidentiality owed by a bank to its customer and further extended the obligation to other professional relationships including financial services business generally.

The Law criminalises any breach of the duty of confidentiality which is not in accordance with the provisions of the CRPL.

Extra-territoriality

Section 3(1) of the CRPL states that the Law has application 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 thereafter whether they be within the jurisdiction or thereout.

Prohibited disclosure

Section 5 of the CRPL states that whoever being in possession of confidential information however obtained divulges it (or attempts, offers or threatens to divulge it) or willfully obtains (or attempts to obtain) confidential information is guilty of an offence and liable on summary conviction to a fine of five thousand dollars and to imprisonment for two years. Furthermore, anyone who receives or solicits a reward for so doing is liable to double the penalty and forfeiture of the reward.

In Re K,B (E) and B (P) (Grand Court: Smellie J, 24 November 1997) the Grand Court illustrated its willingness to enforce these provisions. The Court did not permit the use of information received from a bank in breach of the CRPL as evidence in proceedings overseas (notwithstanding that the receiving party had committed no offence by so receiving it). Smellie J, as he then was, held that to permit further use of the material would have the effect of enforcing an illegal transaction and also cause the receiver of the information to breach section 5(3) of the CRPL (as the holder of confidential information making use of it without consent of the principal). On this basis, the Grand Court ordered the return of the documents and the destruction of all copies held by the person who had received the information.

"Confidential information"

It is to be noted that section 3(1) only prohibits disclosure of "confidential information."

"Confidential Information" is defined as "information concerning any 'property' which the recipient thereof is not, otherwise than in the 'normal course of business', authorised by the 'principal' to divulge".

This means that:

1. Information given by or to a professional person acting within the "normal course of business" is not defined as confidential and its disclosure is therefore not prohibited; and

2. Information given with the implied or express consent of the principal is not "confidential" and is therefore permissible.

In Gippetti v Cayman National Bank 2006 (CILR Note 32) the Grand Court ruled that in circumstances where the principal requests the holder of the information to disclose the information to himself, the holder cannot be in breach of the Law, notwithstanding that the principal might be asking for the information in order to pass it to a foreign revenue agency. Significantly, however, the principal must not have been compelled to request the disclosure of the information by an order of the court for this would render consent void since it had not been freely given.

Any material which does fall within the classification of "confidential information" must not be disclosed unless the exceptions (contained in section 3(2)) to the blanket prohibition apply.

Exceptions to the general rule

Section 3(2) states that the Law has no application to the seeking, divulging or obtaining of confidential information:

a. In compliance with the directions of the Grand Court under section 4 of the Law

b. By or to:

(i) Any professional person acting in the normal course of business or with the consent, express or implied, of the relevant principal;

(ii) a constable of the rank of Inspector or above investigating an offence committed or alleged to have been committed within the jurisdiction;

(iii) a constable of the rank of Inspector or above, specifically authorised by the Governor in that behalf, investigating an offence committed or alleged to have been committed outside the Islands which offence, if committed in the Islands, would be an offence against its laws;

(iv) the Financial Secretary, the Authority or, in relation to particular information specified by the Governor, such other person as the Governor may authorise;

(v) a bank in any proceedings, cause or matter when and to the extent to which it is reasonably necessary for the protection of the bank's interest, either as against its customers or as against third parties in respect of transactions of the bank for, or with, its customer; or

(vi) the relevant professional person with the approval of the Financial Secretary when necessary for the protection of himself or any other person against crime; or

c. In accordance with this or any other law.

Information disclosed in accordance with "any other law".

It is important to recognize and understand the balance that the Cayman Islands has sought to strike between the privacy that investors and financial institutions are entitled to enjoy in the conduct of their lawful private affairs, on the one hand, and the need for an appropriate level of transparency, on the other.

One of the ways in which the Cayman Islands seeks to give effect to these competing aims is by means of certain legislative "gateways" through which confidential information can be passed to law enforcement and regulatory authorities both inside and outside the Islands.

The principle gateways are:

1. The Proceeds of Crime Law, 2008 ("POCL"),

2. The Monetary Authority Law (2011 Revision) ("MAL")2

3. The Mutual Legal Assistance (United States of America) Law (1999 Revision) ("MLAL").

4. The Tax Information Authority Law (2013 Revision) ("TIAL")

An examination of these laws is beyond the scope of this short document. The reader is invited to view our companion guides to these statutes for more detailed information.

Information given to a court, tribunal or other authority in connection with any proceeding

Section 4(1) of the CRPL mandates that whenever a person intends or is required to give evidence in, or in connection with, any proceeding being tried, inquired into or determined by any court, tribunal or other authority (whether within or outside the Islands) any confidential information, he must, before doing so, apply for directions from the Grand Court.

An application for directions under subsection 4(1) shall be made to, and be heard and determined by, a Judge of the Grand Court sitting alone and in camera. At least seven days' notice of any such application shall be given to the Attorney-General and, if the Judge so orders, to any person in the Islands who is a party to the 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. The application shall be made by way of an originating summons supported by an affidavit sworn by or on behalf of the applicant.

The supporting affidavit shall:

1. State the circumstances in which the applicant intends or is required to give evidence;

2. Identify the principals having an interest in the confidential information intended or required to be given in evidence by the applicant and explain the circumstances giving rise to the confidential relationship;

3. Describe in general terms the nature of the evidence intended or required to be given and the reason why it constitutes confidential information; and

4. State the reasons why or to what extent the relevant principal objects to disclosure by the applicant of the confidential information intended or required to be given in evidence..

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.

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.

Additional case law

Re Ansbacher (Cayman) Limited (Grand Court) 2001 CILR 214

The applicant, a Cayman bank, applied under section 4 CRPL to disclose confidential information in proceedings in Ireland. The bank had received notice of an order made by the Irish High Court authorising an investigation into allegations that its affairs had been conducted with intent to defraud its clients' creditors by tax evasion.

The bank wished to disclose confidential information to the investigators, including the identities of some of its clients, in order to clear its own name (by allowing the investigators to seek confirmation as to the bona fides of the transactions in question). Some of the clients objected on the basis that it would be an invasion of their privacy.

The Grand Court held that it was appropriate to weigh the bank's interest in protective disclosure of information against the interests in privacy of their clients. The Court held that no disclosure of the clients' identities to a foreign tribunal investigating a bank's alleged conspiracy to defraud would be permitted, unless there were specific and provable allegations of wrongdoing against the clients.

On the facts of this particular case, the Court permitted disclosure of financial information subject to the identities of the bank's clients being protected.

In the Matter of Corporacion Nacional Del Cobre de Chile (In re Codelco) 1999 CILR 42

The applicant applied for directions under the CRPL as to whether the applicant's US attorneys should comply with a subpoena from the US Commodity Futures Trading Commission.

The Grand Court decided that there was a notice of motion before the New York Court which satisfied the definition of "proceeding" in connection with which the applicant's attorneys were required to give evidence. Accordingly, the information could be disclosed.

The Court noted that the difficulties which had arisen of the application could have been avoided if the parties had sought assistance from the Court under the Mutual Legal Assistance Treaty ("MLAT"), on the basis that the investigation involved a criminal fraud.

In the Matter of Criminal Investigations by the Frankfurt Police 1999 CILR 1

The applicant bank applied for directions under the CRPL s.4. The bank had received a request from the Frankfurt Police for confidential information about a person who had inquired about opening a corporate account with the bank and who was under investigation in Germany for suspected blackmail. The request was supported by a letter from the State Attorney in charge of the investigation, at the Frankfurt court, referring to the matter by its case number. The bank sought directions on whether to comply with the request.

The court held that it had no jurisdiction to give directions under s.4(1) since neither the Frankfurt Police nor the State Attorney was an "authority" inquiring into a "proceeding" in which evidence was to be given by the applicant. In keeping with the common law on judicial comity, the word "authority" was to be read ejusdem generis with the preceding words and was intended to mean a body in the nature of a court or tribunal and not merely a law enforcement agency. Accordingly, the application would be dismissed

UBS (Bahamas) Limited v Weybridge and Barclays Bank PLC (Grand Court: Smellie CJ, 24 September 1998)

The court would not make an order for discovery conferring on the recipient a discretion to use material disclosed thereby in any foreign proceedings necessary to pursue a related tracing claim. Such an order overrides the implied undertaking not to use discovered information for purposes other than the instant proceedings and conflicts with the principle that the court has no automatic remit over matters outside its jurisdiction and therefore must be satisfied that such further use is warranted. When an application is made under the CRPL, s.4 in response to the order, the court will require an express undertaking from the respondent not to use the information abroad without leave before it permits disclosure.

In Re H (Grand Court: Smellie J, 8 October 1996

The applicant sought directions under the CRPL, s.4 on whether he should comply with a subpoena issued by a grand jury in the United States.

The applicant, a US citizen, was subpoenaed by a grand jury in Pennsylvania to give evidence relating to assets in the Cayman Islands which his father had allegedly failed to disclose as his property in bankruptcy proceedings in Pennsylvania. The assets were part of a trust fund of which the applicant's father was the purported settlor and of which the applicant had been appointed trustee. The validity of the trust was the subject of litigation pending in the Cayman courts at the time of the application and, although the applicant's father did not object to the disclosure of the information sought, the trust companies holding the assets did not give their consent.

The Grand Court held that: "[i]t is ... a well established principle of English common law that the court will not, and is not as a matter of judicial comity obliged to, render assistance to the deliberations of the grand jury, which is not a court..."

UJB Financial Corporation v Chilmark Offshore Capital Fund Limited 1992 CILR 53

The applicant applied for discovery against the defendant to support claims made in a foreign suit.

The applicant, a bank holding company incorporated in New York, brought proceedings there against certain of its shareholders including the defendant. It alleged that the defendant had violated the US Exchange Act by failing to disclose to the Securities & Exchange Commission an agreement it had made with its own shareholders concerning securities issued by the applicant. To support this claim it was necessary for the applicant to discover the identities of the shareholders of the defendant (the names of whom were registered in the Cayman Islands) with a view to obtaining further information from them.

On the basis of its wide discovery laws, the New York court granted a declaration that the applicant was entitled to disclosure of the information sought but to safeguard against breach of the Cayman confidentiality laws, further directed that the parties apply to the Cayman courts for directions.

Accordingly, in the present proceedings the applicant sought directions as to (a) whether the defendant's list of shareholders was confidential information within the meaning of the CRPL; (b) whether such information should be disclosed pursuant to the New York ruling; and (c) if so, on what conditions.

The Grand Court refused to grant an order for disclosure. Although as an exercise in comity the court would normally give effect to an order by a friendly foreign court, it was unable to do so in this case. The defendant's register of shareholders was confidential information protected by the CRPL and the court's discretion to allow discovery was dependent on the nature of the application for discovery. The applicant had offered no evidence to support the allegation it was making against the defendant in the New York proceedings and, moreover, could not proceed with the proceedings unless it were able to obtain further information from certain as yet unidentified shareholders. The application therefore appeared to be solely a fishing expedition for the purpose of ascertaining whether there was a basis for the New York proceedings. The applicant had failed to make out a sufficiently persuasive case to warrant an order that the register of shareholders should be disclosed.

Footnotes

1 'Confidentiality' is not be confused with 'Legal Professional Privilege' ("LPP") (which is the subject of a separate advisory note). In essence, LPP is narrower than confidentiality and has the effect of allowing a party to litigation to withhold an otherwise disclosable document.

2 The Cayman Islands Monetary Authority ("CIMA") was established under the Monetary Authority Law in 1996. Its role includes maintaining the regulatory and supervisory regime in the Cayman Islands.

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.

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