When Consent Is Not Consent
By Dominic Chambers QC
Posted: 1st February 2016 09:15
Recently civil courts in the United States of America have been making increasing use of so-called “consent directives” or “disclosure directives”, whereby the court (in the exercise of its personal jurisdiction) has compelled the customer of a bank to sign a directive authorising the bank to disclose details of his account which would otherwise have remained secret under the terms of the banker/customer relationship and local bank-secrecy laws. This increase has been in part driven by co-ordinated international efforts to combat money-laundering, fraud, bribery and tax evasion. It is a no-brainer for customers involved in such activities to use the banks of certain countries precisely because of their stringent bank-secrecy laws. Such customers are not known for volunteering any useful information about their affairs, or giving consent to their bank to disclose anything about them, even their identity. The response of US courts is court-ordered consent through compelled disclosure directives.
In the USA the use of disclosure directives is firmly established in criminal cases under the principles of the Supreme Court’s decision in Doe v United States, 487 U.S. 201, 215-17 (1988), but their use in civil cases has until now been comparatively rare. The purpose of the disclosure directive is to obtain foreign bank records concerning the parties to the litigation where they would otherwise be unavailable, usually because the bank would be forced to breach local bank-secrecy laws and risk criminal penalties by giving disclosure. The rationale of the disclosure directive is to side-step these difficulties by compelling the customer to sign a directive authorising his bank to make the necessary disclosure (on the basis that, in most jurisdictions, banks are usually free to disclose information if the customer consents, even in countries with the strictest bank-secrecy laws). Recent increasing use of disclosure directives by US courts in civil cases has brought into sharp focus their enforceability in the foreign jurisdiction where the bank holds the relevant records, including England, Switzerland and other countries in the EU.
Under English law banks owe a contractual duty to the customer not to disclose confidential information about their customers under the well-established principles in Tournier v National Provincial and Union Bank of England  1 KB 461 where four general exceptions to the duty were identified, including disclosure under compulsion by law and disclosure by consent of the customer. In England, disclosure under compulsion by law is an ever-expanding category, and includes disclosure in aid of tracing claims and under a host of criminal statutes including the Terrorism Act 2000, the Proceeds of Crime Act 2002 and the multitude of money-laundering regulations. But such disclosure does not always extend to orders of a foreign court. For example, in X AG v A Bank  2 All ER 464 a bank was not permitted to answer a New York subpoena on the basis that its duty of confidence to its customer outweighed its interests in avoiding foreign contempt of court proceedings. In FDC Co Ltd. v Chase Manhattan Bank NA (unreported, Civil Nos. 65 & 131, 17 October 1984) the Hong Kong Court of Appeal came to the same result in similar circumstances, holding that the compulsion had to be that of the local law, not a foreign law.
Disclosure directives, however, fall into a different category because they are not orders of a foreign court, rather they represent the product of an order of a foreign court, namely the written consent, given by the customer under sanction of punishment for contempt of court, authorising the bank to give the relevant disclosure. Some foreign jurisdictions, particularly those in tax havens such as the Cayman Islands, take the view that such consents are not true consents because they have been given only as a consequence of compulsion and are therefore not effective to waive the protections offered by local bank-secrecy laws. So, Summerfield CS refused to recognise or enforce a disclosure directive in the Cayman Grand Court –see In the matter of ABC Ltd. [1984-85 CILR 131] in which it was held that where consent is a material element giving rise to a legal consequence, such consent must be voluntarily and freely given in the exercise of an independent and un-coerced judgment. Similar views have been expressed by judges in other jurisdictions with strict bank-secrecy laws, including the Turks & Caicos Islands, Bermuda and Panama.
The counter-argument is that, under domestic law, disclosure of confidential documents is often enshrined in procedural rules so as to enable a fair trial to take place, and those rules are enforced on litigants through sanctions for non-compliance. So, under English procedural law, a party to civil proceedings is required as part of the disclosure process, on pain of sanctions for non-compliance, to obtain relevant documents from his bank – if necessary by written demand to his bank for the documents so that he can disclose them in the course of the proceedings. This is achieved by an order for standard disclosure, which will not in terms direct the party to give the necessary authorisation to his bank, but this will be implicit in the process of giving standard disclosure. It is arguable that, in principle, this is little different to a US court, who has personal jurisdiction over a party, ordering that party to sign a disclosure directive. Some foreign jurisdictions have been willing to uphold the efficacy of US disclosure directives on this basis.
Although the English courts have not (yet) ruled on the efficacy of disclosure directives, in a recent English law arbitration involving the author, the arbitrators adopted a similar approach to that of the Cayman Grand Court, and also drew analogies with the Protection of Trading Interests Act 1980 to help neuter the more exotic assertions of US extra-territorial jurisdiction (which the disclosure directive was perceived to be). Some EU countries have enlisted the assistance of the European Convention on Human Rights to counter disclosure directives. So, for example, in Marsoner v United States (40 F.3d 959 (9th Cir. 1994), it was, with some justification, argued that incarcerating the customer as punishment for refusing to sign a disclosure directive authorising the release of Austrian bank records, which would otherwise be protected by Austrian bank secrecy, breached Articles 3, 6 and 8 of the Convention and was in breach of Austrian law which prohibits the use of coercion or threats to obtain a confession or other evidence. Similar considerations apply in Switzerland whose law does not regard such consents to be voluntary – see for example Motorola Credit Corporation v Uzan (2003 WL 20311, S.D.N.Y. 27 January 2003). Ultimately, however, the recognition and enforceability of disclosure directives will depend on the principles of the local law where the bank is situated, and that will often engage human rights issues.
The US courts are not blind to all this, but they have taken what may be described as a Pontius Pilate approach to issuing disclosure directives. In short, they will do so even if there is evidence that they will not be recognised or enforced under the relevant foreign law. Instead, the US courts will leave the efficacy of disclosure directives to be determined by the foreign court. So, rather than adjudicating any issue of foreign law, the US court will simply order a defendant to sign the disclosure directive thereby giving the plaintiff the opportunity to try his luck in the foreign jurisdiction – see generally Marsoner (above), Motorola (above), Bank of Crete v Koskotas (1989 WL 46587 S.D.N.Y.) andHansel’N Gretel Brand v Savitsky (1997 WL 633467 S.D.N.Y.). In the last two years this practice has become increasingly more frequent, with the consequence that lawyers in local jurisdictions need to ensure they are fully conversant with the relevant principles and arguments which are currently developing on a case by case and a jurisdiction by jurisdiction basis. After all, consent is not always consent.
Dominic Chambers QC is a senior barrister at the pre-eminent commercial/chancery set of Maitland Chambers in Lincoln’s Inn, London. Dominic specialises in international and domestic commercial litigation and arbitration, with particular emphasis on banking, finance, insolvency, fraud, corruption and bribery, asset tracing, private international law and conflict of laws, restitution, agency, and insurance/reinsurance. Dominic appears regularly in the English Commercial Court and in appellate courts both in the UK and overseas, and is internationally recognised for his off-shore work. Dominic is a member of COMBAR and the London Court of International Arbitration, appearing as both counsel and arbitrator. He also specialises in ICSID arbitrations, acting for States and investors.
Dominic can be contacted on +44 207 406 1200 or by email at firstname.lastname@example.org