Smellie J
IN THE GRAND COURT OF THE CAYMAN ISLANDS
CAUSE NO. 249 OF 1996
IN CHAMBERS
IN THE MATTER OF THE CONFIDENTIAL RELATIONSHIPS (PRESERVATION) LAW (1995 REVISION) ("THE LAW")
AND
IN THE MATTER OF PROCEEDINGS PENDING BEFORE THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA, UNITED STATES OF AMERICA AND/OR A GRAND JURY INVESTIGATION THEREIN AGAINST JOHN P. HALL (SNR.) IN CASE NO. MISC. 1: M1-94-218
APPEARANCES:
Mr. Michael Parkinson for the applicant John P. Hall II.
Mr. Ivor Archie, Solicitor General as amicus curiae.
RULING AND DIRECTIONS
The applicant seeks directions pursuant to Section 4 of the Law whether he should comply with a subpoena which has been served upon him in Pennsylvania in the United States of America requiring him to testify before a Grand Jury there.
The subpoena is in respect of the Grand Jury's investigations into the activities of the applicant and his father John P Hall Snr. relating to alleged violations of the United States Bankruptcy Code. In particular, it is alleged that Hall Snr. voluntarily declared himself bankrupt by petition under
Chapter 11 of the United States Bankruptcy Code presented to the Pennsylvania Court and that in the context of those proceedings failed to disclose to the Court or to his trustee-a-bankruptcy, certain assets situated in the Cayman Islands.
The applicant has not complied with the subpoena. He is of the view that to do so without first bringing this application would have placed him in breach of Cayman Islands law - the information which he holds in respect of the Cayman Islands assets is confidential information within the meaning of the Law. Hence this application.
More specifically, it is the position of the applicant and of Hall Snr. that the assets in the Cayman Islands are the property of the applicant which he holds as trustee according to the express terms of a trust, originally settled by deed in January 1979, and amended to effect the applicant’s appointment as trustee in September 1984.
Notwithstanding that position, it is the intention of the applicant, as explained to me by his attorney Mr. Parkinson, to comply with the Grand Jury subpoena. Compliance has been temporarily stayed pending this application by an order of the Pennsylvania Court, but the applicant, as an American citizen and resident, remains prima facie liable to the sanctions which may arise from non-compliance and will be at pain of penalty there, if the Pennsylvania Court lifts its stay.
This application must therefore also be seen as the fulfilment of the applicant’s obligations to the American Court in good faith to seek to obtain the directions of this Court for disclosure.
Against that background it is appropriate that I should first express my views that this application is indeed required by the Law.
The applicant has the express authorisation to divulge, neither of Hall Snr., as settlor, nor of the underlying trust companies which hold the assets to which the subpoenaed information relates. As a “principal” within section 2 of the Law means a person who has imparted to another confidential information in the course of the transaction of a business of a professional nature, the applicants’ principals would be the trust companies through
which he obtained access to that information or else Hall Snr., as settlor. In this context it should also be noted that under the trust deed the latter’s consent was required to effect the applicant’s appointment and consequential custodianship, as trustee.
Mr. Parkinson informs me that Hall Snr. does not object to the divulgence of the subpoenaed information by the applicant but that is not, in these circumstances, to be taken as authorisation within the meaning of the Law. Hall Snr. is also an American citizen and is the subject of the Grand Jury criminal investigations. It is now to be regarded as settled law that even an expressed consent, let alone acquiescence or non-objection if given under pain of penalty may not be accepted by our Courts as valid consent or authorisation - In re ABC Ltd 1984-85 CILR 130.
The subject-matter of this application being trust property, (which includes information about the property - see sections 2 of the Law) another arguable view is that the applicant, as trustee, is his own principal.
Even if this latter view is the true common law nature of the relationship between the applicant as trustee and the assets of the trust, I may not overlook the meaning of the statute.
That meaning places the applicant in the position of a person to whom confidential information has been imparted by others (the trust companies and the settlor) during the transaction of business of a professional nature ie: the succession to trusteeship. That situation comes squarely within section 2 of the Law and thus requires that the applicant be regarded as a recipient of confidential information for the purposes of the Law. And trustees have in the past been regarded as requiring directions from this Court under the Law before they might divulge into evidence information in respect of their trusts - In the matter of an Application Pursuant to Section 34 of the Confidential Relationships (Preservation) Law 1976 (as amended) Cause 26 of 1987 written judgment of Collett CJ delivered 19th January 1989 and reported at 1988 CILR note 6.
In the event I am wrong on that view of the Law as it applies to a trustee, I should also note my views that upon the necessary application which a trustee would be required to make for directions in these circumstances.
under section 45 of the Trust Law (1996 Revision), I would have felt obliged to reach the same conclusion.
I proceed to consider this application on the basis that it is indeed a necessary and proper application under the Law and that barring the proper consent of the appropriate principal, the applicant, as a matter of Cayman Islands law, is obliged to bring this application and to abide by the outcome.
By way of further background it is to be noted that there is pending before this Court an action in Cause no. 207 of 1995 by which the trustee-in-bankruptcy of Hall Snr. seeks to have the trust declared invalid. The applicant and Hall Snr are among the defendants in that action, which also includes the underlying trust companies as defendants. The validity of the trust is therefore an issue which is not only relevant to the Grand Jury investigation but is also central to that action to be determined by this Court.
Of significance also is the nature of the true ownership of the information sought to be compelled by the Grand Jury subpoena. It is information about assets which are vested in the trustee to be held in trust for the beneficiaries. The trustee therefore owes fiduciary obligations to the beneficiaries not to divulge that information except in accordance with Cayman Islands law which governs the trust - see the Trust Law (1996 Revision) section 85, which prima facie applies to the Trust by virtue of Article 25 of the deed of settlement. Among the beneficiaries are persons (the deed also contemplates possible remoter beneficiaries) who are in no sense the subject of the Grand Jury investigations and for those purposes must be regarded as innocent third parties. These are all factors not to be overlooked when considering what directions are to be appropriately given pursuant to this application.
Apart from the reasons of policy and of wider principle which follow for the directions I will give; I would have felt obliged to arrive at the same conclusion generally in the interests of justice which must recognise the rights of the beneficiaries so long as the trust is one deemed valid under Cayman Islands law. I need not go into what the potential repercussions of unwarranted disclosure may be for the beneficiaries: suffice it to say that
they remain beneficially entitled to that information and to its confidentiality.
Jurisdiction and Comity
It is a well-established principle of English common law - (and thus of Cayman Islands law) - that a court should not regard as being without territorial limit the matters which it might treat as amenable to its own process or the things which it could order a person within its jurisdiction to do elsewhere.
The case law reveals that only in exceptional circumstances will the courts seek to exercise extra-territorial jurisdiction so as to exact compliance in another country and which compliance may be regarded as being in breach of the law there. Examples of such exceptional circumstances have typically arisen where it would be in the interests of justice which will be denied in an important matter because no other recourse is available for obtaining evidence which is vital to the outcome.
That was the conclusion of the English High Court of Justice in Mackinnon v Donaldson Lifkin and Jenrette Securities Corp and others [1986] 1 All E.R. 653 per Hoffman J.
In that case after a careful consideration of the leading cases (and for that matter of the expert opinions of pre-eminent American lawyers as to the equivalent American law) Hoffman J. discharged a subpoena and order of the English court which would require an American bank operating in England to produce documents held at the bank’s head office in New York, as the subpoena and order would take effect in New York and accordingly would be an infringement of the sovereignty of the United States.
In so deciding he observed that it was an established principle that a State should refrain from demanding obedience to its sovereign authority on the part of foreigners in respect of their conduct outside the jurisdiction. And that that principle was to be described as a self-imposed limitation on a state’s sovereign authority.
The same principles would apply here, and this court has expressly recognised those principles of the Mackinnon case. See Attorney General v Bank of Nova Scotia [1985] CILR 418 at p. 431.
Hoffman J. did emphasise in Mackinnon’s case that he was particularly concerned on the facts of that case, with the need to exercise the courts’ jurisdiction with due regard to the sovereignty of others, particularly in the case of banks (see for example supra at page 658 letters f-h where he sets out some of those reasons). Perhaps the most obvious is the international nature of banking business which dictates that banks’ obligations to their clients, including the duty of confidentiality, will vary from jurisdiction to jurisdiction and an order for disclosure from one will likely create a conflict with the laws of another.
For present purposes I can, however, see no basis for distinguishing between the position of a bank and that of a trustee (whether an individual or corporate) being required to divulge for the purposes of domestic public proceedings and under pain of penalty, information which is held in another country and which by the laws that govern the trust, is to be treated as confidential.
There is, of course, an important distinction between compulsion for the purposes of private rights and compulsion of action overseas for the purposes of enforcing and assisting in the domestic administration of justice. The enforcement of the former by injunction or specific performance for example, even if requiring the performance of acts abroad is unobjectionable - the issue is as between private parties for the enforcement of rights as between them: see Mackinnon’s case (supra) p. 658 letter J. But as is also there noted, a penal subpoena such as here being considered, does not involve the enforcement of a private right. It is an exercise of sovereign authority to require citizens and foreigners within the jurisdiction to assist in the administration of justice. Thus, to that extent, a subpoena is intended to take effect, when issued for compliance overseas, by way of infringement of the sovereignty of the foreign State.
Nor does it matter, for present purposes that the person to be compelled (as in this case the applicant from the Grand Jury’s point of view - is not a foreigner but a citizen and amenable to the American jurisdiction. The action to be compelled - here the disclosure of confidential information - is to impact overseas and would purport to compel a breach of foreign law ie: Cayman Islands law. See R v Grossman (1981) 73 Cr. App. R. 302 where the English Court of Appeal refused to order a domestic bank to divulge to
The Revenue for use in penal proceedings confidential information relating to the defendant’s account with its branch in the Isle of Man.
It follows from all the foregoing that I should consider this application from the point of view of whether this Court would regard the case as an appropriate one for the issuance of a subpoena to a person amenable to its jurisdiction but to take effect elsewhere - in this case in the American jurisdiction, were the circumstances to be reversed.
While the jurisdiction exists, it is to be sparingly exercised and only in exceptional circumstances. I do not regard such circumstances as existing here.
If indeed the trust is to be upheld as validly constituted as a matter of Cayman Islands law, its assets and information about them remain confidential. The alleged failure by Hall Snr to disclose to the American court and to his trustee-in-bankruptcy would not in those circumstances be a recognisable offence under Cayman Islands law. If validly constituted, the trust holds property independently of its settlor.
That pivotal issue of validity remains to be decided within the proceedings pending here, as a matter of Cayman Islands law which governs the trust.
While that pivotal issue remains to be decided, far from being exceptionally justified, it would be contrary to public policy and an unwarranted negation of the applicant’s duty of confidentiality owed as trustee, to direct that he gives into evidence confidential information in criminal proceedings which as a matter of Cayman Islands law, may yet come to be regarded as misconceived.
Moreover it is to be noted that the subpoena in question, which would seek to have effect in this jurisdiction, does not emanate from the Pennsylvania court but from the Grand Jury. By this no disrespect is meant for the latter’s proceedings. It is however a well-established principle of English common law that the court will not, and are not as a matter of judicial comity, obliged to render assistance to the deliberations of the Grand Jury, which is not a court. See Rio Tinto Zinc Corp v Westinghouse Electric Corp [1978]
1 All E.R. 434. The affidavit evidence tendered to me in support of this application, apart from the reference to the stay ordered by the Pennsylvania court, does not go on to explain whether that Court has otherwise by its own order, sought to endorse the Grand Jury subpoena, even while imposing the stay.
I should therefore note that even in that latter event I would be obliged to conclude that that would be the exercise by the United States court in these Islands of powers which, by the standards of our courts, would be regarded as excessive.
In conclusion, I am obliged, for all the foregoing reasons, to direct that the evidence not be given. In so concluding I do not overlook the possible alternative avenue which the Grand Jury may have if the trust is held to be invalid and the trustee-in-bankruptcy becomes recognised within this jurisdiction. Then the trustee-in-bankruptcy would come to own the assets and the information in respect of them would be matters within his domain, subject only to any further directions this Court may then give as to the use of that information abroad.
Until then this Court is obliged to give effect to the matters of principle and public policy identified above and which can only be allowed to be overridden in exceptional circumstances not shown to exist here. The general importance of this duty of the court is recognised also in the following statement of Evershed MR made almost half a century ago and reiterated more recently by Leggatt J in XAG and Others v A Bank [1983] 2 All E.R. 464 at 473:
"the courts of this country will, in the natural course, pay great respect and attention to the (orders) of the superior courts of the United States of America, but I conceive that it is nonetheless the proper province of English Courts, when their jurisdiction is involved, not to refrain from exercising that jurisdiction if they think that it is their duty so to do for the protection of rights which are peculiarly subject to their protection. In
so saying, I do not conceive that I am offending in any way against the principles of comity".
That statement of principle has been recognised and applied by our Courts, a more recent example being In the matter of Bank of American Trust and Banking Corporation (Cayman) Limited 1992-93 CILR 574. From my reading of a number of the cases, in particular Mackinnon's case (supra) it also comes through that the American courts would view a penal order emanating from a foreign court in very much the same way as the English and our courts are required to do. That being so I am assured also that the exercise of my discretion under section 4 of the Law directing that the evidence not be given will be regarded as in no way offending against the principles of comity.
I direct that a formal order for signature and filing, embodying the directions given above, be submitted.
A. Smellie Q.C.
Judge of the Grand Court
Dated this 8th day of October 1996