William Simpson and Catherine Moore from Ogier Guernsey examine the balance needed between a trustees' duty of confidentiality versus the trustees' interests.
One of the key duties owed by trustees to beneficiaries of a trust is a duty of confidentiality. This is well known and generally understood by trustees, beneficiaries and fiduciary practitioners. However, in light of ever increasing pressures for tax transparency, the boundaries of this duty are being challenged. Trustees' own-interests may conflict with this duty and it is not always easy to resolve such issues.
This duty is not written into statute and there is no formal handbook that trustees can refer to when this conflict arises. It can therefore be very hard for trustees to know what to do.
Some considerations as trustee
Set out below are some, but not all of course, of the considerations a trustee will likely take into account when their personal position is in conflict with their role as trustee (not in any particular order):
1. Overriding duties
Trustees must of course always bear in mind their duty to act in good faith and en bon père de famille (as a prudent administrator). Trustees must only act in a way that they genuinely consider is in the best interests of the beneficiaries.
2. All beneficiaries' interests
All beneficiaries' interests must be considered together. This may not be simple when the reason for disclosure arises because of the place of residence or nationality of just one of the beneficiaries. It can be very hard to explain to the other beneficiaries that this disclosure is fair.
3. Expert advice
Sometimes a trustee cannot make the decision without assistance. If expert advice is required in carrying out such considerations, then a trustee has the power to seek this advice under the Trusts (Guernsey) Law, 2007.
4. Necessary and specific
Disclosure should only be as is necessary and specific to the reason for the disclosure, for instance compliance with a foreign court order. The impact of disclosure on all parties should be considered and a trustee should not disclose more than is reasonable in the circumstances.
5. Alternatives to disclosure
Whether there are any alternatives should be considered and if the position is negotiable, the trustee should consider such options, where appropriate.
6. Risks if disclosure not made
The risks of non-disclosure should be understood and considered.
Whether permission will be given by the parties to the trust should be considered, but of course may not always be given.
8. Regulatory requirements
Guernsey Financial Services Commission (the GFSC) regulated trustees and trust companies must adhere to regulations and codes of practice published by the GFSC. For example, Trust Service Providers must (according to the Code of Practice published by the GFSC) "maintain confidentiality except where disclosure of information is required or permitted by an applicable law or by guidance published by the GFSC, or authorised by the person(s) to whom the duty of confidentiality is owed".
9. Tax Information Exchange Agreements (TIEAs)
If a tax information exchange request has been made under a TIEA, a trustee will need to consider its obligations thereunder and take specific advice in order to understand those obligations.
Comparison with other fiduciary roles
As has been held for some time, and recently confirmed by the Court of Appeal of Guernsey (see In re B; B v T below), trustees' duty of confidentiality can be analogous to other fiduciary roles, and such a comparison can be helpful to trustees. The duty of confidentiality owed by a trustee to a beneficiary is said to be akin to that owed by a bank to a customer. Reference has been made to the well-known English case of Tournier v National Provincial and Union Bank of England  1 K.B. 461, in finding that whilst trustees have a general duty of confidentiality, such duty is not absolute and can be qualified in the same way as for banks, as follows:
(a) where disclosure is under compulsion by law;
(b) where there is a duty to the public to disclose;
(c) where the interests of the [bank] require disclosure;
(d) where the disclosure is made by the express or implied consent of the [customer].
In line with Tournier therefore, a trustee has a right to disclose information that is reasonably necessary for the protection of trustee's interests. Of course the duties of banks and trustees are not identical but at least in the case of their duty of confidentiality, banks can provide a useful comparison.
When comfort or direction is needed - Court applications
Where a trustee finds himself in this position, he does not need to make the decision of what to do alone. Under the Trusts (Guernsey) Law, 2007, the trustee is given the ability to apply to the Royal Court of Guernsey for directions as to how he should act in any of the affairs of the trust, and the Court may make such orders as it thinks fit.
Example in practice
An example of where a trustee's personal-interest clashed with the duty of confidentiality is the Guernsey Court of Appeal case of In re B; B v T (Court of Appeal, 11 July 2012). The case involved a Guernsey professional trustee which was trustee of two Guernsey law trusts established by a settlor (now deceased) for the benefit of his children and grandchildren. The trust assets constituted a number of French situs assets of substantial value. A protector and family advisory committee had been appointed to protect the interests of the beneficiaries.
In this case, the French tax authorities were carrying out extensive investigations and were contemplating placing the trustee under judicial investigation for criminal offences (translated as "possession of stolen goods and complicity in tax evasion" and "aggravated laundering") and issued a summons requiring the trustee to appear before the District Court of Paris for examination (not as a witness but as a potential defendant). The possible consequences of these proceedings were extremely serious including imprisonment for substantial periods of time and very large fines. There was also a possible action against one of the directors of the trustee personally.
These allegations would obviously have had very serious consequences for the director and the company as a whole. A beneficiary in this case sought to prohibit the trustees from disclosing the information required. The trustee was faced with the unenviable position of having to balance their duties of confidentiality, owed to the beneficiaries, with their own interests. The trustee therefore applied for an order allowing it to disclose trust information in response to the summons.
Both the Court at first instance and the Court of Appeal agreed that some form of disclosure was appropriate and ordered that the trustee could disclose "any information of whatever nature...the Respondent reasonably considers necessary or prudent to protect the interests of the beneficiaries... to secure the preservation of the trust property or to protect the interests of the Respondent personally in the context of on-going criminal investigation". However, as pointed out by the Court of Appeal in this case, when considering a duty of confidentiality, the trustees and if they are unable to, the Court, must perform a balancing act in deciding when disclosure is appropriate.
The balance between the interests of the beneficiaries and the trustees must be made against the "nature, scope, quality and effect of" the threat, in this case the foreign order that may have been ordered. In addition, this balancing act must be considered in light of the general public interest of the disclosure. In this particular case, the Court held that "the potential injustice to the Respondent here 'trumps other considerations' such that the balance falls firmly on the side of dismissing the appeal and granting the application by the Respondent."
Originally published Private Client Practitioner's 2014 Guernsey Special Review, January 2014.
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