Abstract

In The Matter The XYZ Trusts is an important case because it confirmed a number of very useful legal principles. In relation to applications pursuant to section 47 of the Bermuda Trustee Act 1975, it confirmed that such applications may be used in series for the blessing of various stages of a large transaction, the test to be used when asking for the blessing of a momentous decision and that in relation to the variation of a trust it will not create a new settlement. Finally, it confirmed the Bermuda Court's willingness to issue confidentiality orders in cases involving the administration of private trusts.

Issue Section:   Case Note

The Supreme Court of Bermuda has recently confirmed a number of legal principles. The Ruling of Mrs Justice Shade Subair Williams In The Matter The XYZ Trusts, issued on 16 February 2022, highlights and confirms the following:

  1. section 47 applications may be made in series for the blessing of various stages of a large transaction;
  2. the category 2 test recognised by the English High Court in Public Trustee v Cooper [2001] WTLR 901 applies when trustees ask the Court to bless a particularly momentous decision;
  3. the variation of a trust pursuant to a section 47 application will not create a new settlement; and
  4. the Bermuda Court's willingness to issue confidentiality orders in cases that involve the administration of private trusts.

Section 47 of the Bermuda Trustee Act 1975 allows the Court to authorise transactions relating to trust property. It provides the Court with power, where it considers it “expedient” to do so, to confer on trustees the necessary power to amend and restructure trusts where the requisite power is otherwise absent from the trust deed. For example, it may be used to vary beneficial and administrative provisions or grant a power to appoint new trustees. In Gelber and another v Sunderland Foundation and others [2018] EWHC 2344 (Ch) at paragraph 11, the English High Court said, “the notion of expediency is both obvious and slightly elusive. It clearly includes something that is ‘advantageous' or ‘beneficial'.” In describing the term Lewin on Trusts 20th Edition at 52-019 says it means that “…taking into consideration the interests of all the beneficiaries, the transaction or power in question can fairly be said to be expedient in the interests of the trust as a whole.”

In The Matter The XYZ Trusts is a rags-to-riches story of a self-made businessman (the “Patriarch”) of humble beginnings who emigrated to England in the 1930s. He entered the construction industry, built an excellent reputation for himself and grew a very large business in London which expanded over time to a group of companies across Britain and several other jurisdictions. Over the years, more than 20 off-shore trusts were established to hold the assets that had accumulated. The beneficiaries of the trusts are the children of two successive marriages and grandchildren of the Patriarch.

After a number of years of discussion and disagreement over the trusts among the family members and their legal representatives, a non-binding agreement was reached that the assets of the trusts would be divided into thirds for allocation to three different branches of the family. It was only after this agreement was reached that the trustees were involved, jointly with council for the protectors, to propose an asset allocation and consequential restructuring of the trusts. This led to a series of three section 47 applications being undertaken over a period of 7 years, all working towards and approving various stages of the restructuring of the trusts and allocation of the assets into several sub-funds for the three family branches.

The first two section 47 applications sought approval of the Court of the early stages of the restructuring. The first application sought approval of the trustees' decision to develop a comprehensive plan for the restructuring of the trusts. On 10 October 2016, Dr Chief Justice Ian R.C. Kawaley (as he then was) ordered (the 2016 Order) that the trustees were at liberty to develop proposals for restructuring the trusts' assets and the trustees, following ongoing consultation with the adult beneficiaries, went on to produce a proposed asset allocation as sanctioned by the 2016 Order. This, however, resulted in some discord within the family which caused the trustees to make a second section 47 application. In this second application, the trustees sought approval for the development of detailed proposals from the proposed asset allocation, which Kawaley CJ made an order in favour of on 12 December 2017.

In the third section 47 application, the trustees asked the Court to confirm its blessing for the trustees to implement the final detailed proposals. In finding in favour of the trustees in this third section 47 application, Williams J approved a significant restructuring of the trusts, amendments and the modernisation of the trusts' terms and granted in principle an extension of the trusts' termination dates.

In making the various rulings in XYZ Trusts, the Court re-affirmed the category 2 test recognised by the English High Court in Public Trustee v Cooper that it has the jurisdiction to bless the “momentous decisions” of a trustee and in this way protect the decision from a future attack as a breach of trust. In reaching its conclusion, the Court recognised and re-affirmed the four questions to be asked when approaching such applications, as follows:

  1. Do the trustees have the power to enter into the proposed compromise or transaction?
  2. Is the Court satisfied that the trustees have genuinely formed the view that the compromise or transaction is in the interest of the trust and its beneficiaries?
  3. Is the Court satisfied that this is a view that reasonable trustees could have properly arrived at?
  4. Does the Court consider that any of the individual trustees have any actual or potential conflict of interests and, if so, does it consider that this conflict prevents the Court from approving the unanimous decision of the trustees?

A third and very important aspect of the case is that Williams J was asked to find that the proposed restructuring did not constitute the creation of new settlements. Williams J in her Ruling followed several leading English cases dealing with construction of trusts being Roome v Edwards [1982] AC 279, a House of Lords decision, Bond v Pickford [1983] STC 517, a Court of Appeal decision and Swires v Renton [1991] STC 490, a Chancery Division decision. She said, “as I see it, this seemingly technical question should be treated with a high dose of common sense and practicality.” She viewed the jurisdiction of section 47 in XYZ Trusts as enlarging the trustees' powers in order to allocate the existing trust assets among the different branches of the family for their protection and benefit without creating a new settlement. This very helpfully provides authority that undertaking the variation of a trust pursuant to a section 47 application will not create a new settlement.

This very helpfully provides authority that undertaking the variation of a trust pursuant to a section 47 application will not create a new settlement

Finally, in a number of private trust cases, including the recent XYZ Trusts case, the Bermuda Court has ordered that the court file be sealed, the proceedings be anonymised and the application be heard privately in chambers. It has been argued that an application should be heard privately because of the personal administrative nature of the trust application and because it did not involve any factual matters of public interest. In the 2018 case of Re BCD Trust (Confidentiality Orders) [2015] Bda LR 108 Kawaley CJ ruled that in private trust matters “it is inherently consistent with the public interest and the administration of justice generally that applications such as these should be anonymised and dealt with as a private application, where there is no obvious public interest in knowing about an internal trust administration matter.” Kawaley CJ in Re BCD Trust further held that, “persons administering, interested in or settling Bermuda trusts should rest assured that this Court's firmly established practice of making confidentiality orders in appropriate cases, which is merely designed to enable law-abiding citizens to peaceably enjoy their actual and contingent property rights, has a venerable legal basis.”

In The Matter The XYZ Trusts is an important decision as it reaffirms a number of very useful legal principles and the general utility and flexibility of the section 47 jurisdiction of the Bermuda Supreme Court. It shows that the jurisdiction may be used in series for the blessing of various stages of a large transaction. It reaffirmed the category 2 test established in Public Trustee v Cooper to be used when asking the Court to bless a momentous decision. It held that the variation of a trust pursuant to a section 47 application will not create a new settlement and finally, it confirmed the Bermuda Court's willingness to issue confidentiality orders in cases that involve the administration of private trusts.

Originally Published by Trusts & Trustees

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