Analysis
The appellant beneficiary (B) appealed from the order of Judge J R Finch made in the Royal Court of Guernsey on 15 March 2012 granting liberty to the respondent trustee (T) to disclose information and documentation to law enforcement authorities in France inter alia to protect the interests of T in the context of an ongoing criminal investigation.
T was the subsidiary of an international banking group and was the trustee of two trusts created in February 1989 for the benefit of the children and grandchildren of the settlor (S). S had died in 2001. Shortly afterwards, the widow of S waived her entitlement to any interest in the estate but later challenged this waiver and issued civil proceedings in France. Civil proceedings continued and in April 2010 criminal investigations were commenced by the widow of S. A French judge was appointed an investigating magistrate in 2010. The widow of S died in 2010 and the civil claims were extinguished. The criminal proceedings continued. On 19 January 2012, T received a summons from the French judge requiring it to appear at a hearing on 16 March 2012. The summons showed that the French judge was contemplating placing T under investigation for criminal offences including possession of stolen goods and aggravated laundering. If convicted, T could be punished by long terms of imprisonment or heavy fines.
T denied absolutely any wrongdoing. The parties’ experts on French law agreed that there was no basis for criminal liability to attach to T but there was no evidence before the Guernsey court that the French judge shared that view.
B was a granddaughter of S and considered that T’s duty of confidentiality overrode any right that T might have to make disclosure in the French proceedings to defend itself. The appeal was argued on the basis that Judge Finch had failed to carry out the appropriate balancing act or had arrived at a conclusion that was plainly wrong. It was submitted on behalf of B that the investigating magistrate should have used alternative means to obtain the information he required and had deliberately circumvented the safeguards contained in the mutual assistance regime. T responded that the French judge was aware of the mutual assistance route but sought to examine T not as a witness but as a person under suspicion of serious crime.
Held (dismissing the appeal):
- (1) There is a general duty of confidentiality on a trustee but one of the qualifications to that duty arises where disclosure is necessary in connection with the proper administration of the trust. The duty of confidentiality does not impose an absolute duty to stay secret and silent. This is akin to the duty of confidence owed by a bank to its customer. The principles applicable in the case of a bank are equally applicable to a trustee. A trustee has the right to disclose information to the extent reasonably necessary for the protection of the trustee (paras [36]-[40]).
- (2) Notwithstanding the views of the experts in French law, it is likely that the investigating magistrate continues to suspect T of involvement in criminal activity. There has been and continues to be serious prejudice to T if it is unable to attend before the French judge and allay his suspicions of criminal wrongdoing (paras [51]-[56]). There is also a risk to the beneficiaries that information would be disclosed that would otherwise remain confidential (para [57]). On balance, T is at a real risk of identifiable harm if it fails to attend before the examining magistrate and provide at least some information to try to remove the suspicion that T is guilty of the serious offences. Potential injustice to T trumps other considerations and the balance falls firmly on the side of dismissing the appeal (paras [69]-[70]).
- (3) The highest B’s French expert puts the matter is that the French judge may be using the summons to circumvent the requirement in the mutual assistance regime to establish to the satisfaction of the Guernsey authorities that there are reasonable grounds to suspect T of the offences. There is no evidence to conclude the French judge is acting other than in good faith or that his intention is different from that expressed on the face of the summons (paras [63]-[65]). If there was evidence that a foreign criminal investigation was being carried on in bad faith, the court might well take a different approach (para [67]).
- (4) This case serves to remind trustees and beneficiaries that there are limits on confidentiality. One of those limits is the ability of the trustee to protect its own interests in circumstances where silence would be likely to expose the trustee to the real risk of serious harm. A trustee in such circumstances cannot be expected to refuse to answer questions in a court of law and simply suffer the consequences (para [71]).
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