2020 Trust Law Developments

2020 Trust Law Developments

About Fozeia Rana-FahyFozeia Rana-Fahy

Fozeia Rana-Fahy is a Director in the firm’s litigation practice group. Ms. Rana-Fahy practices in the areas of civil and commercial litigation and is an accredited mediator.

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Re B Trust [2020] SC (Bda) 30 Com (23 July 2020)

This trust is said to hold substantial assets worth billions of dollars. The proceedings were commenced by the Plaintiff Trustee seeking, inter alia, directions in relation to disclosure of confidential and sealed documents on the former trustee. In this case, the Court was also being called to determine the scope of disclosure, if any, to which the aggrieved former trustee was entitled.

The judge noted that jurisprudential attention to disclosure in trust cases is primarily focused on the disclosure rights of beneficiaries, settlors and protectors. Further there was little commentary about the rights of former trustees within Beddoe proceedings.

The judge summarised that the Court’s supervisory jurisdiction does not enable a stranger to the trust to obtain disclosure as a form of pre-action disclosure for the purpose of hostile proceedings against the trustees or indeed enable trustees to obtain disclosure against a person otherwise than in his capacity as beneficiary (or any other person interested under the trust) as a form of pre-action disclosure.

In the present case, the Court was concerned with a former trustee who did not seek to destroy or challenge the validity of the trust, but instead was said to be in pursuit of an order for reinstatement as the trustee of the B trust. The judge confirmed the former trustee was not a stranger to the trust and had no standing to join proceeding under Part IV of the Trustee Act 1975.

In practice, the representative voice of the beneficiaries and the protector supported the new trustee. The judge refused to direct that legal advice obtained by the former trustee could be disclosed to the former trustee now in its current state as stranger of the trust. This refusal was without prejudice to any entitlement the former trustee might establish at the civil procedure discovery stage in any separate litigation.

Grand View Private Trust Company Ltd v Wong and Ors (Civil Appeal No. 5A of 2019) (Judgment 20 April 2020)

This case concerned an irrevocable trust known as the GRT. The settlors were two brothers who founded a prominent and immensely successful plastics group of companies in Asia. The beneficiaries of the GRT were the children and remoter issue of the two founders. The trust contained a general power of amendment with an express limitation specifying that the irrevocability clause could not be amended. It also included a specific power of addition/exclusion as well as a power of appointment.

Pursuant to the powers, the trustee took the step to add a new non charitable purpose trust as a beneficiary, remove all other individual discretionary and default beneficiaries and appoint all the assets to the new trust.

The transactions had the effect of revoking the GRT and resettling the assets on the perpetual non-charitable purpose trust from which the original beneficiaries could never benefit.

The former beneficiaries sought to challenge the trustees’ decision making. The trustees argued that the power to remove and replace beneficiaries did not need to be exercised in favour of the beneficiaries being removed. It was argued that the power was so wide that a court had to be slow to interfere and that no practical limits should be placed on the power. At first instance, Justice Kawaley held that the power of amendment could not be used to amend the “substratum” of the trusts such that it effectively amounted to a resettlement.

The Court of Appeal reversed the ruling of Justice Kawaley, finding that there was no rule preventing the exercise of a power of amendment which alters the “substratum” of a trust. The court had rather to consider whether the exercise of the power was within the terms of the trust instrument if the trustee had given adequate deliberation to the exercise of the power and if the power had been used for an improper purpose. The Court of Appeal found that in this case, the trustee had acted lawfully. There was no presumption that the power to add/exclude had to be used in the interests of the existing beneficiaries.

The Privy Council is expected to cast its views on this important issue in 2021.

Trusts (Special Provisions) Act 1989: Enhanced Firewall Provisions

As a result of the various amendments to the Trusts (Special Provisions) Act 1989, further clarity and simplification is provided as to the circumstances in which foreign law shall be excluded from application to a Bermuda trust.

By way of example, section 9 provides that the Supreme Court of Bermuda has express jurisdiction over all trust matters where the trust instrument provides for it. Section 10 provides that foreign law shall not apply to the determination of any question concerning the validity, construction, effects or administration of a Bermuda trust, unless foreign land is concerned, or if foreign law has been chosen to apply to any severable aspect of a Bermuda trust. Section 11 prevents the enforcement or recognition of any foreign court order that conflicts with the provisions of section 11.