What is a Guernsey trustee's duty of confidentiality?

A trustee's duty of confidentiality is an important area of trust law that is often the subject of court proceedings.

The Guernsey Court of Appeal decision of In the matter of B [2011-12 GLR 694] provided important clarification of the limits to the trustee's duty of confidentiality to the beneficiaries, especially in the light of potential injustice.

While the facts of the case are unique, they continue to be of particular interest to trustees and other fiduciaries. The issues raised during the matter should be kept in mind when drafting trust documentation and considering the future of a trust, its beneficiaries and potential fiscal issues.

Meanwhile, the 2015 case In the Matter of the K Trust [2015] GLR 433 further confirmed that the duty of confidentiality of a Guernsey trustee will likely extend to other roles where these roles involve fiduciary powers.

Background to In the matter of B

This case involved a Guernsey professional trustee who acted as trustee of two Guernsey law trusts. These had been established by a settlor (who had passed away in 2001) for the benefit of his children and grandchildren to hold a number of French assets of substantial value. A protector and family advisory committee had been appointed to protect the interests of the beneficiaries.

The French tax authorities carried 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"). They 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 has a whole.

Expert opinions were obtained which held that there was no basis for criminal liability on the part of the trustee.

Between a rock and a hard place

On becoming aware of the French summons, a beneficiary of the trusts brought proceedings in the Royal Court of Guernsey for an order to be made to prevent the trustee from disclosing information relating to the trusts without leave of the Court. 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. The Court at first instance directed that the trustee could disclose "any information of whatever nature… the Respondent reasonably considers necessary or desirable 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 ongoing criminal investigation".

Unsurprisingly, the beneficiary appealed against this decision on the basis that the trustee owed a duty of confidentiality to the beneficiaries and the trust and that such a duty overrides a trustee's right to disclose information in order to defend itself, even in criminal proceedings. The beneficiary was also concerned the information provided to the authorities would be used in existing criminal investigations or to bring new civil claims initiated by the settlor's widow (and joined by one of the settlor's sons). The widow was said to have waived her entitlement to the settlor's estate years previously. Further, there was said to be a real risk that trust assets would be seized and/or frozen. Expert evidence was submitted which supported these fears.

The Court of Appeal heard the case as a de novo (new) hearing, as extensive additional evidence had been provided between the first instance hearing and the appeal. It dismissed the appeal, finding that in certain cases, the balance of duties lies in favour of the trustee to the extent that disclosure was required to defend the trustee. The only change made to the directions at first instance were that the trustee could disclose information "necessary or prudent to protect the interests of the beneficiaries".

Case law in other jurisdictions

In considering the duty of confidentiality owed by a trustee, the Court of Appeal looked to both English law and Jersey cases, including the Jersey case of In re Internine Trust [2006 JLR 195]. The Guernsey Court concluded that In re Internine Trust did not deal with the question of duty of confidence generally, but purely in the context of hostile proceedings. However, for In the matter of B, the Guernsey Court needed to consider the wider issue, making this a very interesting decision indeed.

The Court of Appeal held that the duty of confidentiality did not apply differently to different types of documents (as has been held in Jersey case law), but that it applies generally, subject to qualifications based on the circumstances.

Like banker like trustee: when is disclosure appropriate?

In analysing when disclosure would be appropriate, the Court, confirming what some have already considered to be the correct analogy, held that the duty of confidentiality owed by a trustee to a beneficiary is akin to that owed by a bank to a customer. Citing the well-known English case of Tournier v National Provincial and Union Bank of England [1924] 1 K.B. 461, the Court held that trustees have a general duty of confidentiality, but that such duty was not absolute. This duty can be qualified as follows:

1. where disclosure is under compulsion by law
2. where there is a duty to the public to disclose
3. where the interests of the [bank] require disclosure
4. where the disclosure is made by the express or implied consent of the [customer]

In line with Tournier therefore, the Court of Appeal held that a trustee has a right to disclose such information reasonably necessary for the protection of the trustee's interests.

While some have already argued that the application of principles developed in a banking relationship might be difficult to apply in a trust setting, the Court of Appeal did clearly point out that the duties owed by trustees and by banks are not identical.

Choosing between the interests of beneficiaries and trustees

The Court of Appeal held that in deciding, in each circumstance, whether disclosure is appropriate, a balancing act is also required between the interests of the beneficiaries and the trustees against the "nature, scope, quality and effect of the foreign order" that may be 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".

A protector's duty of confidentiality

The 2015 case In the Matter of the K Trust considered a protector's duty of confidentiality. In K Trust, the beneficiaries of the trust applied for the removal of the protector in her fiduciary capacity and sought orders for the protector's papers and documents relating to the trust to be delivered to the trustee. Relations between the protector and the beneficiaries had broken down following the settlor's death to the extent that the court noted the position was "hostile", with the beneficiaries repeatedly requesting the protector resign as protector of the trust.

The protector argued that section 15(2)(b) of the Law, which states that the settlor conferring various powers on a person in relation to a trust did not, subject to the terms of the trust, impose any fiduciary duties on that person. Importantly, the trust instrument, which was drafted prior to the introduction of the Trusts (Guernsey) Law, 2007 (as amended) had conferred an extensive and broad range of powers on the protector, some of which were fiduciary in nature (for example, the power to appoint new or additional trustees and the power to appoint a replacement protector).

The Court noted that in correspondence, the protector had conducted herself throughout her involvement with the trust as if she were the holder of fiduciary powers. Furthermore, in written correspondence she accepted she had the same duty of confidentiality as a trustee of a Guernsey trust (and referenced the case of In re B, above) and that the duties of confidentiality would remain in place when she vacated the office of protector.

Therefore, the duty of confidentiality of a Guernsey trustee will likely extend to other roles where the office holder is the holder of fiduciary powers.

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Disclaimer

This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.

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