Family Trust Disputes in Bermuda

Family Trust Disputes in Bermuda

There has been a significant increase in contentious and non-contentious trust matters arising from family disputes in relation to Bermuda trusts. Most often these involve wealthy international dynastic families or family corporations.

The type of matters we see before the Bermuda Courts include applications for variation of trusts or sanctions of a compromise between the trustees and various classes of beneficiary and/or the consent of the court on behalf of minor beneficiaries; applications for directions eg. relating to disclosure or distribution of assets; applications to remove trustees for breach of their duties or recovery assets allegedly lost as a result of breach of the trustees’ duties; and applications to set aside the whole trust on the grounds of fraud, undue influence or the uncertainty and failure of the trust objects.

Written decisions do not exist in many of these cases in which confidentiality orders are regularly issued. However, there have been several recent rulings which have been of interest to overseas trust practitioners advising their private clients in relation to their dealings with Bermuda trusts.

Extension of perpetuity periods has been approved in previous applications but until the decision in ABC Trust [2012] SC (Bda) 65 Civ there has been no written decision addressing this. This case confirmed that in the event there is benefit to the trust as a whole (eg. depriving future generations of the benefits of the trust), then the trustee could amend the provisions of the trust deed to extend the perpetuity period of a trust settled prior to the abolition of the rule against perpetuities.

In BQ, CQ vs DQ, EQ and others [2010] SC (BDA) 40 Civ a declaration was sought that certain trusts were invalid on the basis that they were testamentary in nature. Retention of beneficial powers and interests as well as the power of the settler to revoke were considered. Established commonwealth decisions were compared against the position taken in the United States where there is a trend to uphold inter vivos trusts no matter how extensive the settlor’s reserved powers of administration. The American position was rejected. In applying established law in England, it was held that the key question was the degree of accountability of the trustee. In this case, the trust was held to be invalid due to the settlors retention of powers and interests.

In the Matter of A Trust [2012] SC (Bda) 72 Civ, the Chief Justice considered an anti-suit injunction application commenced by one of the beneficiaries to enforce settlement terms which had been authorized by the Supreme Court of Bermuda in 2011 in relation to trust assets which were worth some $1billion. The relief sought included injunctive and declatory relief preventing a disaffected beneficiary from taking proceedings in another jurisdiction relating to a Bermuda trust (to compel the Trustee to disclose information about the underlying operating company which was the principal trust asset). The Chief Justice granted the injunction holding that the Bermuda Court had exclusive jurisdiction due to the express choice of law governing clause together with the provision that the administration of the trust was the Bermuda court.

In another 2013 case of Re Hannover Trust, The Dressage Trust and the Vulcano Trust, the Chief Justice confirmed that leave for service of an originating summons out of the jurisdiction is not required for non-contentious applications by Bermudian trustees for directions relating to the administration of a trust.

Finally a recent 2013 decision in an anonymised case involving another family trust dispute, the Trustee was prohibited from disclosing any information to a beneficiary without the consent of the family member protector. The application raised the novel question of the impact of an information control clause or mechanism on this Court’s supervisory jurisdiction over a Bermudian trust. The open judgment found that the relevant clause was valid and outlined the circumstances in which the Court could supplement the disclosure mechanism prescribed by the trust and direct disclosure by the Trustees in the exercise of the Court’s supervisory jurisdiction over the Trust. The Chief Justice found that the prescribed machinery for the beneficiaries to hold the Trustees accountable had effectively broken down and that the plaintiff beneficiary had therefore made out a prima facie case for the exercise of the Court’s discretion to order disclosure. Disclosure was ordered subject to safeguards. This novel issue which has not received prior published judicial consideration is now subject to appeal proceedings.