A recent Court of Appeal decision in Guernsey, Re B (2012) has highlighted the issue of trustees' duty of confidentiality when disclosure of confidential information may be in the best interests of the trustees. The case raises questions as to how to balance a trustee's duty of care to the beneficiaries and the right of a trustee to protect itself when facing serious harm? Russell Clark, partner at Carey Olsen discusses the law surrounding confidentiality and how the facts of this case, in particular, serve to remind trustees and beneficiaries that there are limits to trustees' to keep certain matters confidential.
It is well understood that the trustee-beneficiary relationship is one of confidence. The trustee is obliged to act in the best interests of the beneficiaries and, accordingly, to keep information about the beneficiaries and the trust confidential. The duty of confidentiality however, is not absolute; it does not apply to information that is generally accessible, is useless or trivial or where disclosure is of "far greater importance" (i.e. where the public interest in maintaining confidence is outweighed by the public interest in the information being disclosed). It is also accepted that a disclosure of trust information, made in accordance with obligations imposed by the law (such as to the competent tax authorities or anti-money laundering authorities), does not constitute a breach of the trustee's duty of confidence.
However, where a beneficiary insists on absolute confidentiality, to what extent is the trustee obliged to resist the disclosure of trust information to investigating authorities? Does that duty demand that a trustee uphold the confidentiality of trust information regardless of the consequences for the trustee personally?
In the case of Re B, the Guernsey Court of Appeal considered the limits on the trustee's duty of confidentiality and has provided some useful guidance on the disclosure of trust information when a trustee is stuck between a rock and a hard place. The case involved two Guernsey trusts administered by a professional trustee. The trusts have, since 2010, been the focus of litigation in France: firstly in civil proceedings brought by the widow of the settlor in connection with the parties' matrimonial property division and, secondly, in private criminal proceedings instigated by the widow.
In early 2012 the trustee received a French summons indicating that a French judge was contemplating putting the trustee under judicial investigation in France for criminal offences relating to money laundering and complicity in tax evasion; offences which carry severe penalties under French law. The summons made clear that it was the trustee's activity as trustee of the particular trusts which were of concern. The trustee was confident that the concerns of the French judge were wholly unfounded and wished to demonstrate to the French judge that it had not committed any criminal act. One of the beneficiaries ("A") issued proceedings in the Royal Court of Guernsey to prevent the trustee from disclosing any information relating to the trusts to the French judge in its defence.
"A" suggested that the French judge was trying to obtain information about the trusts for ancillary purposes connected with other investigations in relation to the family. The trustee made a cross-application for an order that it be at liberty to disclose trust information insofar as it was necessary to demonstrate that it had not committed any crime or to protect the interests of the beneficiaries or the trust property. The matter came before the Royal Court which made an order permitting the trustee to make this limited disclosure to the French law enforcement authorities.
"A" appealed the decision and obtained a stay of the order of the Royal Court preventing the trustee from disclosing trust information. The appeal came before the Court of Appeal in Guernsey in early July 2012.
The Court of Appeal accepted that a trustee is under a duty to keep the affairs of a trust confidential, and likened the duty to that owed by a bank in relation to the affairs of a customer. While the court accepted that the duty owed by a trustee is not identical to that owed by a bank (as it does not arise as a matter of contract) it considered that the principles applicable to a bank's duty of confidence were equally applicable to the trustee in this case. The court referred to English authority which gave four exceptions to the duty of confidence:
- where disclosure is under compulsion of law;
- where there is a duty to the public to disclose;
- where the interests of the bank require disclosure; and
- where the disclosure is made by the express or implied consent of the customer trustee confidentiality
The Guernsey Court of Appeal accepted that the duty of confidentiality was subject to the qualification that the trustee had the right to disclose such information when, and to the extent to which it is reasonably necessary, for the protection of the trustee's interest. Having made that finding, the court then proceeded on the basis that the trustee's duty of confidentiality is not absolute and a balancing exercise, involving the interests of the parties appearing before it and regard for the broader public interest, should be applied to determine whether disclosure should be permitted.
The Court of Appeal then considered the interests of the beneficiaries, the risks of the dissemination of information between French authorities, the risk of seizure of trust assets and the risk of further civil proceedings. This was weighed against the interests of the trustee, the risks of one its directors ("X") being arrested and the trustee facing criminal charges likely to be seriously damaging to its reputation and business. The court concluded that the potential injustice to the trustee "trumps other considerations" such that the balance was firmly on the side of the trustee, and dismissed the appeal. In its final analysis, the court considered that to allow the appeal would: "deny the trustee and X (as its representative) the opportunity to defend themselves against serious criminal allegations.
To prevent them from availing themselves of that opportunity might result in charges being preferred against them and convictions being recorded in their absence. It is not for this Court to make any assessment of their chances of success in persuading the French Judge of the falsity of the allegations made against them. But, granted X's wish to take the opportunity on her own behalf and that of the trustee,it would be plainly wrong for this Court to inhibit it. In weighing the principle of confidentiality to which the beneficiaries are entitled and the principle that no court should connive an injustice, it is plain where the balance lies". Neither the Royal Court at first instance nor the Court of Appeal authorised the trustee to provide whatever information the French Judge might have wanted to ask in relation to the family – which could have been seen as an attempt to circumvent the established mechanisms to obtain evidence in Guernsey for use in criminal proceedings outside of the island.
Disclosure was limited to that information which was reasonably necessary or prudent to protect the trust assets, the beneficiaries or the trustee personally in light of the allegations being made. The ruling serves to prevent a flood of foreign law enforcement authorities seeking to obtain information regarding trusts in the Channel Islands by making spurious allegations against trustees personally.
The facts of this case are most unusual but they do serve as a reminder that there are limits to a trustee's obligation to keep the affairs of the trust confidential. A trustee will not be expected to remain silent, possibly suffering a miscarriage of justice, when appropriate and limited disclosure will serve to protect its interests. The confirmation that the English principles relating to bankers' duties of confidence apply equally to trustees, which was thought to have been the case, is also welcome.
Originally published in Private Client Practitioner, January 2013
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