Re Bankamerica Trust & Banking Corporation (Cayman) Ltd

• Jurisdiction: Cayman Islands
• Judge: (Harre, C.J.)
• Judgment Date: 05 November 1993
• Court: Grand Court (Cayman Islands)
• Date: 05 November 1993

Grand Court

(Harre, C.J.)

IN THE MATTER OF BANKAMERICA TRUST AND BANKING CORPORATION (CAYMAN) LIMITED

IN THE MATTER OF BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION

N. Timms for the applicant;

M. Marsden, Acting Solicitor General, as amicus curiae.

Cases cited:

(1) Att. Gen. v. Bank of Nova Scotia, 1984–85 CILR 418, dicta of Summerfield, C.J. applied.

(2) Mackinnon v. Donaldson, Lufkin & Jenrette Secs. Corp., [1986] Ch. 482; [1986] 1 All E.R. 653, dicta of Hoffmann J. applied.

(3) Norway”s (State of) Application, In re (No. 2), [1990] 1 A.C. 723; [1989] 1 All E.R. 745.

(4) R. v. GrossmanUNK(1981), 73 Cr. App. R. 302; 1981–83 MLR 20, dicta of Lord Denning, M.R. applied.

(5) Tournier v. National Provncl. & Union Bank of England Ltd., [1924] 1 K.B. 461; [1923] All E.R. Rep. 550, dictum of Leggatt J. applied.

(6) X A.G. v. A Bank, [1983] 2 All E.R. 464; [1983] 2 Lloyd”s Rep. 535, considered.

Legislation construed:

Confidential Relationships (Preservation) Law (Law 16 of 1976), s.3(2)(b)(v), as substituted by the Confidential Relationships (Preservation) (Amendment) Law, 1979 (Law 26 of 1979), s.3: The relevant terms of this sub-section are set out at page 579, lines 12–21.

s.3A(3), as added by the Confidential Relationships (Preservation) (Amendment) Law, 1979 (Law 26 of 1979), s.4:

‘Upon hearing an application under sub-section (2) a Judge shall direct-

(a) that the evidence be given, or

(b) that the evidence shall not be given; or

(c) that the evidence be given subject to conditions which he may specify whereby the confidentiality of information is safeguarded.’

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) to disclose confidential information under order of foreign court so as to avoid contempt proceedings

Confidential Relationships-protection of bank”s interests-divulging of information under order of foreign court-preservation of confidentiality in Cayman Islands outweighs interests of foreign Revenue in enforcing summons fishing for confidential information-court may especially refuse to permit bank”s disclosure if other avenues available for Revenue to acquire information

The applicant applied for an order permitting it to disclose confidential information to the US Internal Revenue Service.

The applicant, a US bank with a subsidiary in the Cayman Islands, was issued with a John Doe summons by the US Internal Revenue Service for the purpose of identifying (for possible tax liability) persons who had transferred or received large sums during a specified period. The summons did not identify the persons but requested the bank to produce both foreign and domestic records in respect of these transfers or receipts.

Under US law, transactions taking place at the bank”s Cayman subsidiary were deemed to be within the scope of the summons and failure to comply with it meant that the bank could be compelled, on threat of sanction, including being found in contempt of court, to produce the relevant documents. The bank advised the Internal Revenue Service and the US court that the documents were protected from disclosure by Cayman banking confidentiality laws but undertook to produce the documents in respect of which it had the customer”s consent to disclosure. It also sought to satisfy the summons as well as it could from its records within the United States. It made the present application to the Cayman court in an effort to resolve the matter and to discharge its obligation under US law to make all efforts in good faith to secure production of the documents.

It submitted in favour of disclosure that (a) the common law

principles on the exceptions to a banker”s duty of confidentiality were applicable in the Cayman Islands through s.3(2)(b)(v) of the Confidential Relationships (Preservation) Law; and (b) accordingly, obedience to the foreign subpoena should prevail over the duty of secrecy, because the bank had a genuine and legitimate interest of its own to obey the subpoena since it was issued pursuant to the law of the country to which it was subject and the fear of being held in contempt was genuine and not unreasonable.

Held, dismissing the application:

(1) Section 3(2)(b)(v) of the Confidential Relationships (Preservation) Law restated the common law exceptions to a banker”s duty of confidentiality. The provision was not intended to operate so as to enforce process emanating from another jurisdiction, i.e. to permit disclosure from a bank properly subject to the foreign jurisdiction which has ordered it, so that the bank might escape possible contempt proceedings. Whether such disclosure should be permitted would still have to be decided in the exercise of its discretion by the Cayman court under s.3A (page 581, line 10 – page 582, line 15).

(2) In spite of the predicament in which the bank might be placed, there were overriding considerations for not permitting the disclosure. The preservation of confidentiality was a cornerstone of the banking business and the preservation of this principle and the confidence in it on which the economy of the Cayman Islands so substantially relied, outweighed the interests of the US Internal Revenue Service in enforcing its John Doe summons. Moreover, since the summons lacked any reference to specific persons as the subject of investigation, it clearly amounted to ‘fishing’ for information, a feature which was in itself an unreasonable exercise of purported extraterritorial jurisdiction. It had also not been shown that important interests of the United States would be undermined by non-compliance or that the information sought was of vital interest to the investigation. On the other hand, there was evidence that the bank had already been able to assist substantially from its records within the United States and there was in place between the two countries a fabric of relationships, notably through the Mutual Legal Assistance Treaty, whereby confidentiality might be lifted in carefully defined instances. In the light of these considerations it would be wrong to authorize the disclosure and the application would be dismissed (page 582, line 36 – page 583, line 17; page 583, lines 27–32).

HARRE, C.J.: The background which has led to this very
important application must be set out in some detail if the issues
are to be understood. On June 15th, 1988 the US Internal
Revenue Service (‘IRS’) issued a summons to Bank of America
25	National Trust & Savings Association (‘the bank’) seeking
records relating to transfers of $9,500 or more by any person
during any 90-day period between the United States, the Cayman
Islands, Hong Kong, and certain other locations during the
calendar years 1986 and 1987. The bank is a national banking
30	association organized under the laws of the United States with
branches and subsidiaries there and in various locations around
the world. One of its subsidiaries, wholly but indirectly owned, is
BankAmerica Trust & Banking Corporation (Cayman Ltd)
(‘Cayman Trust’).
35	Because Cayman Trust is wholly owned by the bank, docu-
ments located at the Trust are deemed under United States law to

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