Introduction

Under Cayman Islands common law, which follows the English common law in this regard, a general equitable duty of confidentiality applies to information coming to the knowledge of a person in circumstances where it would be unconscionable for the recipient to disclose it ("Spycatcher" Case [1990] 1 AC 109). More important in a Cayman Islands context, however, is the Confidential Relationships (Preservation) Law (2009 Revision) (the "CRPL"). The CRPL makes it a criminal offence, inter alia, to divulge confidential information (as defined), subject to certain limited exceptions.

To reflect the need for transparency in some circumstances, Cayman Islands legislation provides "gateways" through which confidential information can be passed to law enforcement and regulatory authorities in and outside the Cayman Islands. These include the Proceeds of Crime Law (2014 Revision), the Monetary Authority Law (2013 Revision), the Mutual Legal Assistance (United States of America) Law (1999 Revision) and, more recently, the Tax Information Authority Law (2014 Revision) and the numerous bilateral Tax Information Exchange Agreements between the Cayman Islands and other countries, as well as the Freedom of Information Law. Please see our Firm Memo entitled "Fiscal Transparency in the Cayman Islands" for further information with regard to such gateways.

The Confidential Relationships (Preservation) Law

Background

The CRPL was first enacted in 1976 with the intention of protecting legitimate business transactions and of imposing strict penalties and sentences on those unlawfully disclosing information in respect of such transactions.

The CRPL codifies the common law duty of confidentiality owed by a bank to its customer, extends the duty to other professional relationships and criminalises a breach of that duty unless disclosure occurs in accordance with the provisions of the CRPL. The CRPL recognises the duty of lawyers, bankers, accountants, government officials, and others involved in financial services businesses to maintain the confidentiality of the identity and business of their clients.

Criminal offence

The CRPL makes it a criminal offence to divulge (or threaten, offer or attempt to divulge) or wilfully to obtain (or attempt to obtain) any confidential information with respect to business of a professional nature, which arises in, or is brought into, the Cayman Islands. The penalty for committing an offence under the CRPL is up to two years' imprisonment and a fine of CI$5,000.

Definitions

"Confidential Information" is widely defined to include "information concerning any property which the recipient thereof is not, otherwise than in the normal course of business, authorised by the principal to divulge".

"Property" is defined as "including every present, contingent and future interest or claim direct or indirect, legal or equitable, positive or negative, in any money, money's worth, realty or personality, movable or immovable, rights and securities there over and all documents and things evidencing or relating thereto".

"Normal course of business" means "the ordinary and necessary routine involved in the efficient carrying out of the instructions of a principal including compliance with such laws and legal process as arises out of and in connection therewith and the routine exchange of information between licensees".

"Principal" means "a person who has imparted to another confidential information in the course of the transaction of business of a professional nature".

"Business of a professional nature" is defined as including "… the relationship between a professional person and a principal, however the latter may be described".

"Professional person" includes "a public or government official, a bank, trust company, an attorney-at-law, an accountant, an estate agent, an insurer, a broker and every kind of commercial agent and advisor whether or not answering to the above descriptions and whether or not licensed or authorised to act in that capacity and every person subordinate to or in the employ or control of such person for the purpose of his professional activities".

The CRPL purports to have extra-territorial effect in that it claims to apply, not only to relevant  confidential information which arises in or is brought into the Islands, but also to all persons coming into possession of such information thereafter 'whether they be within the jurisdiction or outside it'.

These wide definitions make it difficult to ascertain the precise breadth of the offence. The official record of the debate in the Cayman Islands Legislative Assembly suggests that the law was designed to ensure confidentiality in the operation of the financial services industry on the Island, and that "professional persons" was intended to comprise people who are considered part of the financial community and who are involved in the financial operation of the country.

Lawful disclosure

There are several exceptions under the CRPL pursuant to which information may be sought or divulged notwithstanding that it is confidential. Unless one of these exceptions applies, confidential information cannot be disclosed and the Cayman court will have no jurisdiction to order its disclosure. The exceptions include information sought, divulged or obtained:

  1. by or to a professional person acting within the normal course of business;
  2. with the express or implied consent of the principal of the information; and
  3. in compliance with the directions of the Cayman court pursuant to the procedure as set out in the CRPL.

In some situations it will be obvious that a person giving confidential information is acting in the normal course of business. However, the scope of that exception is unclear, and the definition in the CRPL itself (as set out above) does not take the matter much further. In practice, particularly in light of the criminal sanctions for breach of the CRPL, in most cases, it is advisable either to a) obtain the consent of the principal or b) obtain directions from the court (or in some cases to do both) before disclosing or seeking any confidential information (as defined in the CRPL).

Consent of the principal

As set out above, the principal of confidential information under the CRPL is defined as the person who has imparted confidential information to another. The relevant principal will depend on the facts, but the authorities provide some guidance. A company acting through its directors or officers empowered to authorise disclosure is the exclusive principal in relation to that company's bank accounts, and there is no relevant principal once a company is defunct (Att. Gen. v Bank of Nova Scotia 1984-85 CILR 418). The settlor of a trust fund is that fund's principal (In re Merrill Lynch Bank & Trust Co. (Cayman) Ltd. 2006 CIRL N33).

The principal's consent must be freely given, and is not so given when given on direction of a foreign court on pain of criminal penalty (In re ABC Ltd 1984-85 CILR 130; In re H 1996 CILR 237). However, provided that he has not been compelled to request the disclosure of the information by a court order, if the principal requests the holder of the information to disclose the information to himself, the holder cannot be in breach of the CRPL, notwithstanding that the principal might be asking for the information in order to pass it on voluntarily to a foreign revenue agency (Gippetti v Cayman National Bank 2006 CILR N32).

Although it may be express or implied, a principal's consent must be specific: there is no authority to disclose confidential information about a non-consenting individual depositor merely because consent has been obtained from a majority in value of depositors (In re International Monetary Bank 1952-79 CILR 257).

Directions from the court

In accordance with the general principle that confidentiality is no bar to the disclosure of information in court, the CRPL allows confidential information to be given in evidence in proceedings, subject to certain safeguards. Pursuant to section 4 of the CRPL a person who intends or is required to give in evidence in, or in connection with, any proceeding by any court, tribunal or other authority (whether within or outside the Cayman Islands) any confidential information must apply for directions from the Cayman court before doing so. Such an application is known as a "Section 4 application".

In order for the court to have jurisdiction under a Section 4 application, the proposed disclosure must be in the context of a "proceeding" before a "court, tribunal or other authority". So, for example, a foreign police force and state attorney (In the Matter of Criminal Investigations by the Frankfurt Police 1999 CILR 1), a US Grand Jury (In Re H) and inspectors conducting a foreign public inquiry (In re Ansbacher (Cayman) Ltd. 2001 CILR 214) do not fall within this category. However, the court may permit disclosure in compliance with a US Commodity Futures Trading Commission subpoena if an application to enforce the subpoena is pending before a US court, provided that the application ultimately succeeds (In re Codelco 1999 CILR 42).

Upon a Section 4 application being made, the court may give a ruling allowing the evidence to be given, that it not be given or that the evidence be given subject to conditions safeguarding the confidential information, for example, that the information only be divulged to certain named persons, or that the evidence be taken in camera. For example, in Re Ansbacher (Cayman) Limited, the court permitted a bank to disclose certain financial information subject to concealment of the identities of its clients. The court has no jurisdiction to make a positive injunctive order restraining the disclosure of confidential information, but only to give directions about giving it in evidence (In re W 2004-05 CILR 554).

A Section 4 application is made by way of a summons which must be supported by an affidavit sworn on behalf of the applicant which:

  1. states the circumstances in which the applicant is to give evidence;
  2. identifies the principal of the confidential information and explains the circumstances giving rise to the confidential relationship;
  3. describes in general terms the nature of the evidence to be given and why it constitutes confidential information; and
  4. states the reasons why or to what extent the principal objects to disclosure by the applicant.

The matters to which the court must have regard in making a determination under section 4 of the CRPL include:

  1. whether the order would operate as a denial of the rights of any person in the enforcement of a just claim;
  2. any offer of compensation or indemnity made to any person desiring to enforce a claim by any person having an interest in the preservation of secrecy under the CILR; and
  3. in any criminal case, the requirements of the interests of justice.

The court has identified a number of further factors that it may consider when determining whether to order disclosure of confidential information under the CRPL.  These include:

  1. Whether there is an alternative means of obtaining the information which may be used in preference to the CRPL where it applies, for example under the Mutual Legal Assistance Treaty (In Re Codelco) or from other documents outside the scope of the CILR (In re Bank of Butterfield Intl (Cayman) Ltd. 1997 CILR N8).
  2. Public policy:
    1. It is ordinarily against public policy to permit disclosure of information to a government agency unable to give undertakings as to future use (In Re Codelco).
    2. It is against public policy to allow disclosure by a trustee of information about trust assets in compliance with a foreign subpoena while there is a legal challenge pending to the validity of the trust (In re H).
  3. Weighing the applicant's interest in protective disclosure of information against the interests in privacy of its clients (Re Ansbacher (Cayman) Limited 2001 CILR 214).
  4. Whether the application is in the context of a mere fishing expedition for the purpose of ascertaining whether there is a basis for a foreign claim (UJB Financial Corporation v Chilmark Offshore Capital Fund Limited 1992 CILR 53).

The court has also shown reluctance to allow disclosure where its use is uncertain or where disclosure would have an undesirable side-effect. In UBS (Bahamas) Limited v Weybridge and Barclays Bank PLC 1998 CILR N8 the court stated that on any application under the CRPL, it would require an express undertaking not to use the information abroad without the leave of the court. In Re K 1997 CILR N9 the court ordered the return of information obtained from a bank in breach of the CRPL to that bank and the destruction of all copies held by the recipient of the information, notwithstanding that the recipient committed no offence by receiving it. To permit further use of it would, among other things, have the effect of enforcing an illegal transaction.

Company and shareholder information

Certain information in relation to companies is confidential in the Cayman Islands.

Exempted companies are required by section 40 of the Companies Law (as amended) to maintain a register of members at the registered office of the company, but this is not open to public inspection.

Every company is required to keep proper books of account so as to give a true and fair view of its state of affairs and to explain its transactions. However, except for licensed banks, trust companies, mutual funds, insurance companies and company management companies, which must file audited financial statements, there is no statutory requirement that any accounts be audited or filed with the Cayman Islands Government.