It can sometimes be a dangerous business to be a professional trustee operating in a world where the fiscal and judicial authorities of certain on-shore states take a dim view of their citizens' desire to minimise their exposure to taxation.
Where such a trustee is behaving perfectly properly (in accordance with the laws and regulations of its own jurisdiction) but suddenly finds itself on the receiving end of a criminal summons from another jurisdiction what is it to do?
In theory it could, of course, go to the authorities of that other jurisdiction and try to demonstrate that it was behaving perfectly properly in relation to whichever structure that authority was concerned about, but to do so would necessarily entail disclosing considerable details in relation to the particular trust, its assets and its beneficiaries. Would acting in such a way constitute a breach of the trustee's obligations to the beneficiaries? Would the courts of the trustee's home jurisdiction be sympathetic to the position of the trustee? This is an issue which was canvassed recently before the Guernsey Court of Appeal, but it is a scenario that could easily arise in any of the offshore jurisdictions.
In Re B – The Facts
The case of In Re B (Guernsey Court of Appeal, 35/2012) involved a Guernsey trust company (TrustCo) and one of its Directors (X) who were providing trustee services to two trusts. One of the trusts indirectly owned a share in real property situated in France, and both had French beneficiaries.
Following the death of the settlor of the trusts in 2001 his widow instituted civil proceedings in France in relation to the distribution of the settlor's estate. An order was made for a judicial division of the joint marital assets and the assets of the settlor's estate in 2005, but as these proceedings rumbled on the assets contained in the trusts also became the subject of discussion. A criminal investigation in relation to the trusts was established in 2010 at the instigation of the widow and an investigating magistrate was duly appointed to look into the matter. The widow herself died later in 2010 (and with her, her civil claims also expired) but the criminal investigation persisted.
Simultaneously, it seems that tax investigations into the trusts and the beneficiaries were also progressing in France and, following a change in French tax law in 2011, certain disclosure obligations were imposed on trustees of trusts with French assets and/or French beneficiaries.
In 2011, the protector of the trusts (a Swiss lawyer) was summonsed to give evidence to the investigating magistrate, but it seems he was uncooperative and did not disclose any material information in relation to the trusts. The investigating magistrate's reaction was to summons TrustCo to attend before him for investigation – crucially, not as a witness but as a suspect with a view to being charged with assisting tax evasion and aggravated money laundering.
On taking French legal advice, TrustCo decided that its best course of action was to answer the summons and make disclosure of relevant information in respect of the trusts with a view to showing that it had acted properly at all times. On learning of this, however, one of the beneficiaries strongly objected to the proposed course of action, arguing that in doing so TrustCo would be in breach of its duty of confidence to the beneficiaries of the trusts. Not surprisingly, the matter came before the Guernsey courts.
In the absence of anything expressed in either the trust deeds or in the Trusts (Guernsey) Law 2007, addressing the issue of the power to disclose trusts information to third parties, the Court first had to determine what the law of confidentiality was in these circumstances. The position under English law is that trustees must keep the affairs of the trust confidential. Set against that, however, the Court noted that the leading Jersey authority on the point (In The Matter of The Internine and The Azali Trusts 2006 JLR 195) had held that there was no "irrefutable presumption that all documents held by the trustees for the purposes of the trusts were confidential". On a careful reading of the Internine judgment, however, it becomes clear that the Court in that case was only considering the issue of confidentiality within the context of what amounted to a lawful discovery process – i.e. whether or not the documents concerned were privileged in some way rather than simply the subject of a duty of confidentiality. In the current case the Guernsey court had no hesitation in deciding that TrustCo did have a general duty of confidentiality to the beneficiaries of the trusts, albeit one that was subject to a number of qualifications.
What were these "qualifications" to the duty of confidentiality that makes that duty less than absolute? The Court determined that they were broadly similar to those which apply to a bank's duty of confidentiality as they were formulated in Tournier ( 1 KB 46), i.e. (i) where disclosure is required by law, (ii) where there is a duty to the public to disclose, (iii) where disclosure is made with the express or implied consent of the party to whom the duty is owed and (crucially for this case) (iv) where the interests of the disclosing party require disclosure to be made. Essentially, the Court found that a trustee "has the right to disclose such information when, and to the extent which it is reasonable necessary, for the protection of the [trustee's] interest".
Having determined the law, the question was whether or not it was reasonably necessary for TrustCo to answer the French summons and disclose information in relation to the trusts to protect its interests. The beneficiary argued that it wasn't. TrustCo and X, unsurprisingly, argued that it was since (i) they faced possible criminal charges and sanctions and (ii) the reputational risk to TrustCo was significant. Happily for TrustCo the Court agreed with it, and permission was granted to disclose information in relation to the trusts to the French investigating magistrate.
A number of points can be taken away from In Re B. Firstly, notwithstanding the Internine case, it seems likely that In Re B contains a preferable statement of the general law applicable to a trustee's duties of confidentiality to beneficiaries and one which we may well see referred to in the Jersey courts in future. Secondly, it serves to remind both trustees and beneficiaries that "there are limits to the obligation on trustees to keep the affairs of the trust confidential". Finally, it shows (once again) that the local courts are there to help professional trustees as well as disgruntled beneficiaries.
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.