Att Gen v Bank of Nova Scotia

• Jurisdiction: Cayman Islands
• Judge: (Summerfield, C.J.)
• Judgment Date: 14 November 1985
• Court: Grand Court (Cayman Islands)
• Date: 14 November 1985

Grand Court

(Summerfield, C.J.)

ATTORNEY GENERAL

and

BANK OF NOVA SCOTIA, BANK OF NOVA SCOTIA TRUST COMPANY (CAYMAN) LIMITED, BOYKO and MACDOWELL

T.P.E. Curry, Q.C. and R.W. Ground, Senior Crown Counsel, for the Attorney General;

P. Lamontagne, Q.C. and G. Ritchie for the defendants.

Cases cited:

(1) ABC Ltd., In re, 1984–85 CILR 130; 1985 FLR 159, applied.

(2) Gouriet v. Att.-Gen.ELR, [1978] A.C. 435; sub nom. Gouriet v. Union of P.O. Workers, [1977] 3 All E.R. 70.

(3) MacKinnon v. Donaldson Lufkin & Jenrette Sees. Corp., [1986] Ch. 482; [1986] 1 All E.R. 653; 1986 FLR 225.

(4) Pao On v. Lau Yiu Long, [1980] A.C. 614; [1979] 3 All E.R. 65, considered.

(5) U.S. v. Ghidoni(1984), 732 F. 2d 814.

Legislation construed:

Confidential Relationships (Preservation) Law (Law 16 of 1976), s.3(2), as substituted by the Confidential Relationships (Preservation) (Amendment) Law, 1979 (Law 26 of 1979), s.3:

‘This Law has no application to the seeking, divulging, or obtaining, of confidential information-

. . .

(b) by or to-

(i) any professional person acting in the normal course of business or with the consent, express or implied, of the relevant principal . . . .’

(v) The relevant terms of this sub-paragraph are set out at page 429, lines 4–15.

Confidential Relationships-consent of principal-consent given under court order-consent under Confidential Relationships (Preservation) Law, s.3(2)(b)(i) must be voluntarily and freely given-not so given when given on direction of foreign court on pain of criminal penalty

Confidential Relationships-consent of principal-relevant principal in respect of company”s affairs-company acting through directors or officers empowered to authorise disclosure is exclusive ‘relevant principal’ in relation to its bank accounts for purposes of Confidential Relationships (Preservation) Law, s.3(2)(b)(i) and no ‘relevant principal’ once company defunct-mere authorised signatory to bank account not ‘principal’

Confidential Relationships-protection of bank”s interests-divulging information under order of foreign court-bank cannot rely on Confidential Relationships (Preservation) Law, s.3(2)(b)(v) for disclosures made to foreign court solely to escape penalties-s.3(2)(b)(v) applies only to proceedings within Islands to which bank a party and where interest protected is in respect of transactions for or with customer

Confidential Relationships-power of court to protect confidentiality-custody of documents-court may order surrender of banker”s books and copies in order to prevent unauthorised disclosure of confidential information

The Attorney General sought an order to restrain the defendants

from disclosing confidential information relating to the bank accounts of one of their customers pursuant to a ‘consent’ which was about to be signed by a person authorised to draw on such accounts, acting in compliance with an order of a foreign court; to restrain them from removing relevant documents or copies thereof from the jurisdiction; and to compel them to deposit all such relevant documents and copies with the Financial Secretary.

The first defendant was a Canadian bank with branches in the United States and one branch in the Islands. X Ltd., a Cayman company of which Mr. Z was a director, maintained accounts with the bank and Mr. Y, a citizen and resident of the United States, was an authorised signatory in respect of such accounts although not a director or shareholder of the company.

Some years after X Ltd. had been struck off the register, the United States Government began an investigation into the tax affairs of Mr. Y. A Federal grand jury issued a subpoena to the first defendant demanding production of all records of accounts held at its Grand Cayman branch over which Mr. Y had signatory authority and, despite his opposition, Mr. Y was ordered by a Federal appeal court to sign a consent directive which would authorise the first defendant to disclose records of such accounts. It was anticipated that Mr. Y would sign the consent directive when required to do so, since he would otherwise be in contempt of court and liable to fines or imprisonment or both. Meanwhile Mr. Z informed the defendants that he would not consent to the disclosure of confidential information relating to X Ltd.”s accounts in response to a consent directive signed by Mr. Y.

The Attorney General then made the present application seeking to restrain the defendants from making the disclosures and to obtain possession of all relevant documents, submitting that the defendants would be in breach of the Confidential Relationships (Preservation) Law, as amended, since (i) a consent directive signed under the threat of contempt proceedings and fines and/or imprisonment in the event of a refusal could not constitute ‘consent’ within s.3(2)(b)(i), which required a voluntary agreement to the disclosure of confidential information; (ii) even if a consent directive were valid for the purposes of s.3(2)(b)(i), Mr. Y”s consent would be irrelevant since he was never a ‘relevant principal’ within the terms of the sub-section, being merely an authorised signatory and not a director or officer of X Ltd.; and (iii) having been served with a subpoena to produce the information in question, the first defendant”s proper course of action was to apply to the court for directions under s.3A of the Confidential Relationships (Preservation) Law, as amended.

The first defendant submitted that it could properly comply with the terms of the consent directive and the subpoena since (i) a consent directive constituted ‘consent’ for the purposes of s.3(2)(b)(i) of the Confidential Relationships (Preservation) Law, as amended and (ii) disclosure was in any case ‘reasonably necessary for the protection of the bank”s interest’ within s.3(2)(b)(v), since refusal to comply with the consent directive or the subpoena would render it liable to heavy

financial penalties in the United States, and it would not, therefore, be in breach of the Law.

Held, granting the application:

(1) The consent directive would be signed by Mr. Y under protest and only when faced with the alternative of criminal penalties and would not therefore constitute ‘consent’ for the purpose of s.3(2)(b)(i), which required the voluntary agreement of the relevant principal to allow the disclosure of confidential information. The consent directive was in reality a direction given to the bank by the United States court rather than by Mr. Y and it would clearly be contrary to public policy to allow a foreign court to undermine and circumvent the provisions of the Confidential Relationships (Preservation) Law, by treating it as a valid consent for the purposes of the sub-section (page 426, line 8 – page 428, line 25).

(2) Even if it did constitute a valid ‘consent’ for the purpose of s.3(2)(b)(i), the consent directive to be signed by Mr. Y would not be proper authority for the disclosure of X Ltd.”s accounts, since he was not and never had been a ‘relevant principal’ within the terms of that sub-section but only a signatory of its bank account. Until X Ltd. was struck off the register, the ‘relevant principal’ in relation to its accounts was the company itself acting through its directors or officers to authorise disclosure. Since the company was now defunct, there was no ‘relevant principal’ empowered to authorise disclosure and disclosure could therefore be effected only by one of the other processes recognised by the Confidential Relationships (Preservation) Law (page 428, line 26 – page 429, line 1).

(3) The first defendant could not rely on s.3(2)(b)(v) for the purpose of disclosing the confidential information to a United States court, since this provision did not apply to proceedings in a foreign court or to proceedings to which the bank itself was not a party. Its purpose was to allow a bank to sue one of its customers or to defend proceedings relating to disputed accounts and to reveal confidential information relevant to such proceedings. Furthermore, the only interest which a bank was entitled to protect under the terms of s.3(2)(b)(v) was in respect of its transactions for or with its customer, and the first defendant could not therefore rely upon this sub-section for disclosures made to a foreign court in order to escape possible contempt proceedings (page 429, line 2 – page 430, line 3).

(4) Unlike s.3(2)(b)(v), s.3A(1) of the Law made express reference to proceedings outside the Islands, and the first defendant”s correct course of action, having been served with the subpoena requiring the disclosure of confidential information in proceedings in the United States, was to apply to the court for directions under s.3A and to abide by any final order made (page 430, lines 4–13).

(5) The application would, therefore, be granted.

SUMMERFIELD, C.J.: As an interim measure, pending trial
on the originating summons claiming substantially the same relief
on a permanent basis, the summons seeks the following orders,
30	with costs:
‘1. An order that the defendants and each of them, by
themselves, their officers, servants, agents, attorneys or
otherwise howsoever, be restrained pending trial or further
order from divulging to any person any confidential infor-
35	mation or documents (as defined in s.2 of the Evidence Law,
1978) or copies thereof of any nature whatsoever, in their
possession, custody or control relating to or concerning any
bank account whatsoever in reliance upon or pursuant to
any purported consent or directive signed by or on behalf of
40	any person authorised to draw upon any account, or in
whose name any account is held, pursuant to any order of

any court in the United States of America.

2. An order that the defendants and each of them,

whether by themselves, their officers, servants, agents,

attorneys or otherwise

...