From Mourant Ozannes

Confidential Relationships (Preservation) Law (2009 Revision)

Much has been made in recent times of the need for transparency in offshore financial centres. A variety of factors, including globalisation and the tumultuous state of international financial markets following the advent of the recession in 2008, have led to calls for accountability and greater access to information regarding offshore affairs.

Legislators and courts in the Cayman Islands face the daunting task of balancing Cayman’s need to be financially transparent with its duty to protect the confidentiality of lawful business activities connected with the Islands. The Cayman Islands performs this balancing act by upholding the common law duty of confidentiality and by the statutory framework of the Confidential Relationships (Preservation) Law (2009 Revision) (CRPL).

The CRPL: A Brief Overview

The CRPL dates back to 1976 and was enacted with a view to maintaining the confidentiality of commercial activities that take place in or in connection with the Cayman Islands. The CRPL applies to certain categories of individuals and sets out what constitutes confidential information, the circumstances in which such information can be lawfully disclosed, and prescribes penalties for unlawful disclosure of confidential information.

The CRPL is sometimes referred to as a secrecy law, a label which is misleading, because whilst the CRPL criminalises the unauthorised disclosure of confidential information as defined in section 2, it also provides gateways through which such information can be released in order to protect public interest both locally and abroad (as per Smellie, CJ in Re Ansbacher (Cayman) Ltd [2001] CILR 269).

The scope of the CRPL is set out in section 3:

. . .this 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.

Thus, the CRPL has extraterritorial effect, applying to all confidential information brought into the Islands, regardless of where such information originated.

Confidential information is broadly defined in section 2 as information which a professional person is only authorised to divulge in the normal course of business. The definition of professional person is wide and includes bankers, lawyers, accountants and potentially any individual working within the financial sector.

Section 5 of the CRPL makes it a criminal offence for anyone possessing confidential information to divulge it; attempt, offer or threaten to divulge it; or make use of

it for his or another’s benefit. It is also an offence to willfully obtain or even attempt to obtain confidential information. Penalties for breaching the provisions of the CRPL are severe and include fines, imprisonment and disgorgement of profits. The threat of criminal sanctions for breaching the provisions of the CRPL is an indication of the seriousness with which the Cayman Islands approaches the preservation of confidential information. Notwithstanding this, there have been calls over the last several years to repeal the CRPL and replace it with a Disclosure of Confidential Information (Regulation) Law which would decriminalize the unlawful disclosure of information. However, no such changes have yet been implemented.

Lawful Disclosure of Confidential Information

In section 3(2), the CRPL outlines a number of exceptions whereby confidential information may be revealed without the sanction of the Court. Such exceptions include acting in the normal course of business, disclosing confidential information with the consent of a client or in co-operation with various official bodies. Pursuant to section 3(2)(b)(v), confidential information may also be disclosed by a bank when it is reasonably necessary for the protection of the bank’s interests (see discussion of In Re Ansbacher (Cayman) Limited [2001] CILR 214 (Re Ansbacher) below).

Where no exception in section 3(2) of the CRPL applies, the Law makes further provision for disclosing confidential information when a disclosure is to be made in connection with legal proceedings, where the person intending to make the disclosure has first obtained the permission of the Grand Court. Pursuant to section 4(1), any person who is required to or intends to give evidence in, or in connection with, proceedings before any court, tribunal or other authority must apply for directions from the Grand Court before making a disclosure. For example, if an accountant working in Cayman was subpoenaed by an American court to give evidence there, that accountant would be obligated to apply for directions from the Cayman Court as to whether or not to do so, and if so, on what, if any, conditions.

An application under CRPL section 4 is made by way of an ex parte summons supported by an affidavit sworn on behalf of the applicant outlining the circumstances surrounding the disclosure of confidential information and the nature of the information itself. The Attorney General must be provided with notice of the application.

Section 4 applications are heard by a Judge of the Grand Court sitting alone and in camera. In making any determination, the Judge will consider the interests of justice of all parties involved. The Court will then decide whether the evidence may be given, and if so, what, if any conditions will be imposed.

The CRPL provides the Cayman Courts with a wide discretion for directing that confidential information be provided, requiring only that the giving of evidence be connected with legal proceedings and that it be shown to

be in the interests of justice. Section 4(6) sets out the matters which the Court should consider when deciding what order to make in response to a section 4 application. Such matters include whether an order would deny any person the right to the enforcement of a just claim. In the case of In Re I and R [1994- 1995] CILR Note 9, Smellie, J commented:

In seeking to ensure the directions for the disclosure of confidential information do not improperly defeat or frustrate a just cause of action, as it is required to do . . . the court should examine the background, merits and shortcomings of the action for which the information is sought, in the light of any public policy issues raised by the Attorney General and the legal and beneficial interests of innocent third parties likely to be affected by the directions.

The Court will not order the disclosure of confidential information where it appears that the request amounts to a fishing expedition for information. In UJB Financial Corporation v Chilmark Offshore Capital Fund Limited [1992-93] CILR 53, a court in New York issued a declaration that UJB Financial Corporation (UJB) was entitled to disclosure of certain information from Chilmark Offshore Capital Fund Limited (Chilmark), but also ordered that the parties apply to the Cayman courts for directions as to whether the information was confidential and should be disclosed. UJB had provided insufficient evidence to support its allegations against Chilmark in the New York proceedings and could not continue the proceedings without shareholder information.

The Court held that the shareholder register of Chilmark was confidential information pursuant to the provisions of the CRPL. The Court also took the view that the exercise was nothing more than a fishing expedition to elicit information which could assist UJB n constructing its case, and directed the information sought should not be disclosed.

If there is no proceeding being tried, inquired into or determined by any court, tribunal or other authority (a term which falls to be construed ejusdem generis with the immediately proceeding words court and tribunal), then the Court will be unable to order the disclosure of confidential information. This was the position in the April 2013 case of In Re CRPL (unreported), in which Mourant Ozannes appeared. An English court had made a production order following an application by a Detective Constable of the Metropolitan Police. The Cayman Court refused to permit disclosure of the information sought, holding that the Metropolitan Police did not fall within the definition of other authority and that its investigation was therefore not a qualifying proceeding for the purposes of the Law.

The judge in the case of In re CRPL distinguished the facts of that case from the circumstances in Re Ansbacher. In Re Ansbacher, the applicant bank, Ansbacher, applied for directions under section 4 of the CRPL, having received an order from 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 order authorised the inspectors of the Court to examine the business activities of Ansbacher in Ireland. Ansbacher wished to assist the investigation by disclosing information which would include some of its clients’ identities and applied to the court for directions permitting it to do so. Some of Ansbacher’s clients objected to the application on the basis that such disclosure would be an invasion of their privacy and a breach of the duty of confidentiality owed by the bank.

The Attorney General submitted that the public interest would be furthered by assisting the Irish inspectors because they had been appointed to carry out functions similar to the Cayman Islands Monetary Authority. The Court held that Ansbacher, having shown a sufficient interest to protect, would be directed to disclose the confidential information subject to the condition that the identities of the clients be concealed. If there were any questions the inspectors required individual clients to address, they could be submitted in writing and the clients could answer anonymously. It was further held that since an order for directions was mandatory, Ansbacher would have no liability to its clients for any purported breach of confidentiality.

The power of the Court to control the disclosure of confidential information is limited to the prescribed directions set out in section 4; it does not have carte blanche to prevent the disclosure of information. In the matter of In Re W [2004-05] CILR 554, it was held that the Court had no jurisdiction pursuant to a section 4 application to make a positive injunctive order restraining a person from disclosing confidential information, but only to give directions as to whether or not, and if so and on what conditions, confidential information might be given in evidence. In that case, the Court also held, as it had in Re Ansbacher, that it had no jurisdiction to award the costs of contesting a section 4 application.

It is not always clear whether the Cayman Court will order the disclosure of confidential information in response to a section 4 application; each case will be judged on its own merits. The existing body of case law suggests that if confidential information is to be given in connection with a legitimate proceeding and divulging that information will aid the interests of justice, the Court is likely to order disclosure or conditional disclosure of information, provided the request is not a fishing expedition and will not cause injury to an innocent party.

Contacts:

Peter Hayden, Partner, Cayman Islands

+1 345 814 9108 [email protected]

Hector Robinson, Partner, Cayman Islands

+1 345 814 9114 [email protected]

Morven McMillan, Partner, Cayman Islands

+1 345 814 814 9101 [email protected]

Simon Dickson, Partner, Cayman Islands

+1 345 814 9110 [email protected]

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