Bermuda Court Revisits Confidentiality Orders in Wake of the Paradise Papers

Bermuda Court Revisits Confidentiality Orders in Wake of the Paradise Papers

In the matter of G Trust [2017] SC (Bda) 98 Civ (15 November 2017)

In the 2015 case of Re BCD Trust (confidentiality Order) [2015] Bda LR 208, the Chief Justice had confirmed that with respect to administration of trust cases, proceedings could be anonymised and dealt with as private applications where there was no obvious public interest in knowing about an internal trust administration matter.

In a recent ruling from November 2017, the Chief Justice has re-confirmed his previous finding with respect to confidentiality orders in the context of trust administration matters.

His ruling was prepared after the release of the so-called “Paradise Papers”. The Chief Justice had very much in mind whether the popular onshore attacks on offshore ‘secrecy’ undermined in any way the validity of this Court’s previous practice in this regard. After a detailed consideration of the factors justifying the granting of a confidentiality order, the Chief Justice found as follows:

“The present proceedings concern the internal administration of a private trust into which the general public have no right to pry. 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. The existing practice will continue to be applied in appropriate cases such as the present.”

The ruling then went on to address the substantive issue of how Section 18A to D of Children Act 1998 (as amended by the Children Amendment Act 2002) (“the Children Act”) impacts foreign law trusts when the governing law of that trust is changed to the law of Bermuda.

In a previous decision this year (In the Matter of A Trust (Change of Governing Law) [2017] SC (Bda) 38 Civ) (“Re A Trust”), the Chief Justice ruled that the governing law of a foreign law trust could be changed to Bermuda law without triggering the application of the Children Act and any instruments executed under it.

Revisiting Re A Trust, it was held that there was no proper basis for finding that the Children Act provisions were intended to have indirect retrospective effect on a settlement made under a foreign governing law which, post -2004, became governed by Bermuda law via an indirect route. It followed that the Children Act provisions did not apply to instruments made under settlements which were not governed by those statutory provisions when the relevant settlements were made. Such instruments would continue to draw their character from the core structure of the original settlement.

Accordingly, it was found that the Children Act did not impact the foreign law trust when the governing law was changed to the law of Bermuda.

The plaintiff trustees also sought to make a “Public Trustee v Cooper” application in relation to a momentous decision as to whether the Trusts should be amended to enable the Trustees to restrict the beneficiaries’ access to information rights in relation to the Trusts.

The proposed restrictions were described by the Chief Justice as “elegantly crafted” and sought to restrict information in the following circumstances:

• Where there is a vulnerable beneficiary who is or may fall under the influence of a third party
• Where a beneficiary takes on an office or employment where a “blind trust” may be advisable
• Where a beneficiary moves to a place where risks of corruption in public offices is high
• Where a beneficiary wishes to step back from the trusts for whatever reason
• In relation to a beneficiary who is unlikely (at least for some considerable time) to benefit from the trust

The trustee’s reasons for seeking the proposed restrictions were found to meet the requirements of a Public Trustee v Cooper application. In coming to this conclusion, the Chief Justice was referred to the rulings in Re an Application for Information about a Trust [2013] Bda Lr 16 and [2014] Bda LR 5 (CA) which confirms that there is no necessary objection to the introduction of a clause restricting information rights as long as the clause does not eliminate the Trustee’s duty to account or oust the jurisdiction of the Court to order appropriate disclosure.

In this case, the Chief Justice also approved an application to dis-apply the rule against perpetuities pursuant to Section 4 of the Perpetuities and Accumulations Act 2009 (“the PA Act”). He summarized that Section 4 empowers the Court to declare that the rule against perpetuities shall not apply, most broadly, in relation to:

• Instruments taking effect before 1 August 2009, which are governed by Bermuda law; and
• Instruments taking effect under a foreign governing law either before or after the commencement of the 2009 Act, being a foreign governing law which applied a perpetuity period to the relevant instrument.

It was further confirmed that the statutory discretion conferred on the Court under Section 4 had to be exercised judicially which requires having regard to principle and authority (Breadner v Granville-Grossman [2006] WTLR 411).

The Chief Justice accepted that the Court’s discretion is crucial to the maintenance of the flexibility which the Section 4 statutory power was intended to provide. There may, for example, be a case where a beneficiary or group of beneficiaries might be prejudiced by the making of an order. In such a case the detriment might be minimal or very remote (and therefore of little relevance) or counterbalanced by other, substantial benefits. In other cases it may be that any detriment can be addressed by making an order on terms which repairs or compensates for the detriment, albeit it on a broad rather than a strict accounting sense. With the discretion being unfettered, the range of possibilities is substantial and offers great scope.

This case builds on the previous case law which confirms that Section 4 of the PA Act is an effective, flexible and cost effective tool to dis-apply the rule against perpetuities.