The Guernsey Court of Appeal has recently reviewed the general duty of confidentiality that trustees owe to beneficiaries and reminded us all that the duty of confidentiality is by no means absolute.
In Re B (2012) (Judgment 35/2012), the Court of Appeal considered the use that a trustee may make of trust documents and information to protect itself against criminal charges.
The trustee, a subsidiary of an international banking group, was trustee of two Guernsey trusts, both of substantial value. The widow of the settlor of both trusts had initiated a criminal investigation in France into the trusts which was exploring a variety of serious offences against various parties, including possession of stolen goods, tax evasion and money laundering. The trustee had received a summons from the French judiciary responsible for the investigations to attend before the Court to answer questions concerning the trusts.
Whilst the trustee was not suspected of involvement in the criminal offences, the summons stated that if the trustee did not answer the judge's questions in an open and transparent manner there would be a real risk that the trustee would be charged with these offences.
The applicant, a beneficiary, brought proceedings in the Guernsey Court to prevent the trustee from disclosing information concerning the trusts to the French Court. At first instance, the Guernsey Court held in favour of disclosure by the trustee and, as such, the applicant appeared to the Guernsey Court of Appeal.
Duty of Confidentiality
The Court confirmed that trustees have a general duty to keep the affairs of a trust confidential although there is no irrefutable presumption that all documents held by the trustee are confidential. The legitimacy of disclosure depends entirely on the circumstances.
There was a lack of case law to assist the Court, however, the Court confirmed that a trustee's duty of confidentiality is similar to that owed by a bank to its customers, which is qualified where:
- disclosure is required by law;
- there is a duty to the public to disclosure;
- the interests of the bank require disclosure; or
- disclosure is made with the express or implied consent of the customer.
In determining whether the trustee could disclose, the Court balanced the nature, scope and effect of the French summons against both the interests of the trustee and the beneficiaries.
When considering the interests of the trustee, the Court focussed on the damage that would be caused to the reputation of the trustee, and its parent company, if the trustee was charged with the offences. There would be serious damage to the integrity of the company charged with offences that involved dishonesty and criminal intent, and client confidence, which was at the heart of the company's business, would be shaken.
However, this was balanced against the effects disclosure would have on the beneficiaries. Disclosure may lead to confidential information concerning the trust being disclosed to those who had instigated the criminal proceedings. This could lead to further proceedings and even action being taken to seize the trust property.
The Guernsey Court felt that the damage that would be caused to the trustee trumped all other considerations and ordered that the trustee could disclose information as it reasonably considered necessary or prudent to protect the interests of the beneficiaries, to secure the preservation of the trust property and, most importantly, to protect the interests of the trustee personally in the context of the criminal investigation.
This case is as an important reminder of the limits on the obligations on trustees to keep information concerning trusts confidential, particularly where the inability to disclose would cause the trustee serious harm.
Ultimately, if any trustee has concerns over whether or not it should disclose information concerning a trust, it is imperative that the trustee seeks legal advice as soon as possible in order that any initial response by the trustee is in line with its duties and the law.
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.