Isle of Man: Banking Confidentiality Can Survive Climate Of Cooperation

It Is timely that in today’s climate of co-operation the Isle of Man High Court should give a reminder that certain key confidentiality laws are enshrined and should be followed.

And in doing so our Court has also clarified a number of technical legal points that should greatly assist lawyers and bankers alike in dealing with disclosure requests from foreign authorities.

The guidance comes from His Honour Deemster Cain’s decision in Petition of Blayney and Grace CP 2000/186 (27 April 2001) when the Petitioners, Court appointed Inspectors from Ireland, were refused disclosure of records held at the Isle of Man branch of the National Irish Bank Limited ("the Bank"). The Inspectors were also ordered to pay the Bank’s costs of its defence of the Petition.

The Petition arose out of an application in Ireland by the Irish Minister for Enterprise Trade & Employment to appoint Inspectors to investigate and report on the affairs of the Bank. In a high profile case the High Court of Ireland appointed the Inspectors in March 1998 and in December 1999 the Inspectors requested a list of deposit accounts held at the Bank’s Isle of Man branch at a certain date together with the names and addresses of account holders and balances standing to their accounts. The Inspectors were acting under the jurisdiction of the High Court of Ireland. It was not contested that the Isle of Man branch of the Bank was subject only to the jurisdiction of the Isle of Man High Court. Thus the Inspectors petitioned the Isle of Man High Court for a disclosure order and the Bank responded by raising a number of issues on banker/customer confidentiality in particular relating to the Bankers Book Evidence Act 1935 ("the 1935 Act"), the statute on which the Inspectors relied.

Section 7 of the 1935 Act provides that a party to a legal proceeding can apply to Court to inspect and take copies of entries in a banker’s book for the purposes of such proceedings. The Inspectors stated that they were parties to the proceedings in Ireland and required to see the entries in the Manx branch's accounts for the purposes of those proceedings. But the Bank wanted determination of some apparently hitherto uncertain points before compliance with the request.

Initially the Court was asked to determine whether the investigation into the affairs of a company pursuant to Irish companies legislation could properly fall within the definition of legal proceedings under the 1935 Act. The Court was referred to Lord Denning’s comment in an English case whereby Inspectors had been appointed under parallel English companies legislation. In that case Lord Denning (then Master of the Rolls in England) commented that the Inspectors’ proceedings were not judicial proceedings nor were they even quasi-judicial proceedings for they decided nothing and they determined nothing. They only investigated and reported, said Lord Denning with characteristic clarity.

Accordingly, in the Manx case His Honour Deemster Cain took the view (also supported by an Australian case) that an investigation into the affairs of a company is not a legal proceeding under the 1935 Act. On this ground he dismissed the Petition.

The Deemster, however, helpfully gave his view on other technical points raised by this Petition. Such further findings were obiter (not part of the precedent finding) but they give very helpful guidance.

The Court was asked to determine whether the expression "legal proceeding" in the 1935 Act meant a legal proceeding in the Isle of Man or any legal proceeding in any jurisdiction. The definition included in the 1935 Act itself was not determinative of this point. Citing textbook authority by Isle of Man Advocate Paul Beckett and referring to Lord Denning’s speech in the Manx reported case of R v Grossman [1981-83] MLR 20, His Honour Deemster Cain found that legal proceeding under the 1935 Act means only a legal proceeding in the Isle of Man.

In making this important finding His Honour Deemster Cain recognised that in the past some disclosure applications under the 1935 Act had been granted where the only legal proceedings were outside the Isle of Man. This case is likely to be clear authority to prevent that happening in the future.

Another fascinating finding of the Court in this case related to whether the Court would have made the disclosure order even if the Inspectors could have used the 1935 Act. It was recognised in Court that a Judge’s power to order disclosure of the banker’s books is discretionary and must involve a balancing exercise between observing banker/customer confidentiality and disclosure where required in the public interest. His Honour Deemster Cain reviewed caselaw which stated that the 1935 Act (or its equivalent legislation in England) should not be used for fishing expeditions beyond the ordinary rules of disclosure in litigation. The Court also noted that in this case it was the Irish Bank that was under investigation by the Court appointed Inspectors not the Bank’s customers themselves. On the facts, His Honour Deemster Cain found that the Inspectors’ request to obtain details of the names of the accounts and addresses of the account holders and account balances at the Isle of Man branch was an intrusion into the affairs of third parties and was in the nature of a fishing expedition. Thus the disclosure request would have been declined even if the technical hurdles have been overcome.

And finally it was noted in Court that there was parallel legislation in the Isle of Man (the Companies Act 1974) allowing appointment of Inspectors. In our Companies Act 1974 however it is particularly stated that nothing in the Act shall require disclosure by a company’s bankers of any information as to the affairs of their customers. Accordingly, the Court considered that had Manx Inspectors been appointed this would have raised a difficult issue concerning the disclosure of information about the bank’s customers. This point was however hypothetical as no such appointment was made.

This case therefore will need to be absorbed by bankers, lawyers and foreign authorities alike. The following conclusions can reasonably be drawn:

• Inspectors appointed pursuant to companies legislation akin to that in England and Wales, Ireland and the Isle of Man cannot use the 1935 Act to seek disclosure of banking records in the Isle of Man;
• Section 7 Disclosure Orders under the 1935 Act will only be made in the Isle of Man where there are Manx legal proceedings;
• The 1935 Act cannot be used for fishing expeditions by foreign authorities.

This case does not, however, mean the Isle of Man High Court will grant no disclosure at all to foreign authorities or parties who petition the Isle of Man High Court. There are other well tried routes for disclosure of information and each case will depend on its merits.

The Court has, however, made it clear that in seeking disclosure of confidential information held by an Isle of Man based bank foreign authorities cannot expect to override well enshrined laws and procedure even in today’s climate of cooperation.