Keith Robinson and Anthony Poulton explain why Bermuda's legislation on the variation of trusts gives the jurisdiction an edge over England and Wales
Bermuda has broadly similar legislation to that of England and Wales dealing expressly with the variation of trusts.1 Section 48 of the Bermudian Trustee Act 1975 closely mirrors s1 of the Variation of Trusts Act 1958. These provisions allow the court in each jurisdiction to provide consent to a variation on behalf of beneficiaries who are unable to consent for themselves.2
The Bermudian statute provides further flexibility, however, in s47. This section supplies the court with the jurisdiction to confer upon trustees additional powers even though those powers might result in a variation of beneficial interests.
This article compares s47 with s57 of the Trustee Act 1925 in England and Wales, which, while similar, is narrower in scope. It will be suggested that s47 provides Bermuda with a competitive advantage.
SECTION 52, TRUSTEE ACT 1925
Section 57 authorises the court to confer additional powers on trustees to undertake transactions relating to trust property where the trust instrument does not provide the power for the trustees to do so. The key provision, s57(1), reads as follows: 'Where in the management or administration of any property vested in trustees, any sale, lease, mortgage, surrender, release, or other disposition, or any purchase, investment, acquisition, expenditure or other transaction, is in the opinion of the court expedient, but the same cannot be elected by reason of the absence of any power... the court may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose...'
(Emphasis added.)
The advantage of a s57 application is that, unlike an alternative application under the Variation of Trusts Act 1958, s57 does not require the trustees to obtain the consent of all beneficiaries of full capacity – an expensive and challenging proposition in the case of a large number of geographically dispersed beneficiaries.
This does not mean, however, that s57 provides an unqualified and procedurally simple method for obtaining wide-ranging powers. On the contrary, a close reading of the full provision indicates otherwise, and the courts have been careful to safeguard the boundaries of this power.
'Management or administration'
The first point to note is that s57(1) is limited to the 'management or administration' of trust property. This has been held to encompass transactions of trust property additional to those listed in s57, including:
- the partition of a trust where there is no other power to do so;3
- the blending of funds bequeathed by different wills to the same trusts;4
- the purchase of a tenant for life's debts encumbering their life interest and providing by insurance for the reinstatement of the fund at their death;5
- the sale of trust property that would otherwise have been impossible;6
- investment in otherwise unauthorised securities;7
- the extension of borrowing powers;8
- the authorisation of delegation to investment managers and of holding assets in the names of nominees.9
However, the courts appear to have drawn a line at sanctioning the variation of beneficial interests.10 That said, it is worth noting that the recent cases of Southgate v Sutton [2012] 1 WLR 326 and English & American Insurance Co Ltd [2013] EWHC 3360 demonstrate the court to be willing to retain a measure of fact-dependent flexibility. In these cases, it was held that a partition of trust property to create a sub-fund fell within the definition of 'management and administration', despite varying the beneficial interests, on the grounds that the transaction met the remaining requirements of s57 and the effect on the beneficial interests was 'incidental' only.
'Expedient'
The second safeguard contained within s57 is that the court can only approve powers in relation to transactions that it considers 'expedient'. This has been found to mean that the proposed transaction must benefit the trust as a whole, and not simply some of the beneficiaries.11 However, the conferral of a power has satisfied the test of expediency where this benefits the trust as a whole by facilitating better administration, despite the fact that it is of particular benefit to one group of beneficiaries who are adversely affected by the absence of the power in a way the others are not.12
SECTION 47, TRUSTEE ACT 1975
Section 47 of the Bermudian statute also employs the test of 'expediency' as the threshold requirement. However, the wording of s47 is significantly different from that of s57. The Bermudian provision is derived not only from s57 but also from s64 of the Settled Land Act 1925.
Section 47(1) provides that:
'Where any transaction affecting or concerning any property vested in trustees, is in the opinion of the court expedient, but the same cannot be effected by reason of the absence of any power for that purpose vested in the trustees... the court may by order confer upon the trustees... the necessary power for the purpose.'
(Emphasis added.)
The Bermudian provision does not contain the limiting words 'in the management and administration' that are found in s57 and that have been held in England and Wales not to permit the variation of beneficial interests.13 In addition, the Bermudian statute provides in s47(4) an expansive definition of 'transaction' that is derived from s64 of the Settled Lands Act 1925. Section 47(4) defines 'transaction' as including:
'any sale, exchange, assurance, grant, lease, partition, surrender, reconveyance, release, reservation, or other disposition, and any purchase or other acquisition, and any covenant, contract, or option, and any investment or application of capital, and any compromise or other dealing, or arrangement.'
Broad jurisdiction
It is this wide definition of 'transaction' together with the lack of any limitation to 'management and administration' that allowed the Bermudian court in GHIJ v KL 2010] Bda LR 86 to approve an application under s47 that included providing the trustees with the power to vary beneficial interests. Ground CJ noted that s47 was an amalgam of the two English and Welsh statutes and that the lack of any limitation in the Bermudian statute to administrative matters must be presumed to have been deliberate.14
The Chief Justice also held that, drawing on case law decided under the Settled Land Act 1925,15 the definition of 'transaction' was 'very broad' and allowed the court to approve a resettlement of the trust in question with certain variations (including to beneficial interests) provided that it was 'expedient'. In applying the case law under s57 as to the meaning of 'expediency',16 the Chief Justice held there was no limitation in the statute that prevents the sanction of an arrangement 'simply on the grounds that it is designed in the interests of tax e" ciency'.17
There has now been a second reported Bermudian case on the application of s47. In Re ABC Trusts [2012] Bda LR 89, Kawaley CJ followed with approval GHIJ v KL and noted that s47 'gives the court a very broad jurisdiction indeed to authorise transactions in relation to trust property which have the effect of varying the terms of a trust deed'.18
CONCLUSIONS
The Bermudian court's close examination of the derivation of s47 from the 1925 reforms of the law of trusts in England and Wales provides an interesting example of the law of one offshore financial centre taking a dramatic turn. This has provided much needed flexibility in Bermudian law and a practical mechanism to modernise trusts, while at the same time ensuring careful judicial oversight. In practice, s47 is a powerful tool for the resolution of complex trust disputes and, for the time being at least, it is uniquely available in Bermuda.
Footnotes
1 The authors would like to thank Andrew Matheson, Associate, Dispute Resolution, Baker & McKenzie,for his assistance with this article
2 Thus providing statutory extension to the rule in
Saunders v Vautier (1841) Cr & Ph 240
3 Re Thomas [1930] 1 Ch 194
4 Re Harvey [1941] 3 All ER 284
5 Re Salting [1932] 2 Ch 57
6 Re Hope's Will Trust [1929] 2 Ch 136
7 Re Brassey's Settlement [1955] 1 WLR 192
8 Anker-Petersen v Anker-Petersen (1998) 12 Tru LI 166
9 Ibid
10 Re Downshire Settled Estates [1953] Ch 218;
Re Freeston's Charity [1978] 1 WLR 741
11 Re Craven's Estate (No.2) [1937] Ch 431
12 Southgate v Sutton [2012] 1 WLR 326
13 See footnote 10
14 At 3
15 Raikes v Lygon [1988] 1 WLR 281; Hambro v Duke
of Marlborough [1994] 3 WLR 341
16 Re Craven's Estate No.2
17 At 9
18 At 5
Originally published in STEP Journal Bermuda supplement, October 2014.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
