21 June 2022
Bermuda trust law - the past 30 years
With the Society of Trust and Estate Practitioners (STEP) celebrating its 30th anniversary, Carey Olsen's Ashley Fife has revisited the key trust law developments in Bermuda over the past 30 years.
Bermuda remains a preferred jurisdiction in which to establish and maintain trusts (and increasingly, family offices). Bermuda's Courts and regulatory regime carefully balance privacy with the objective of maintaining appropriate regulation to preserve Bermuda's stellar reputation as a premier international financial services jurisdiction.
An important feature of Bermuda trust law is that it contains many provisions that can resolve problems or otherwise address concerns regarding the administration of trusts. This feature is supplemented by Bermuda’s Courts’ willingness to apply these provisions in a constructive manner. These qualities attract many high net worth families to establish trusts under Bermuda law or (indeed) to change the governing law of trusts to that of Bermuda.
- Section 47 of the Trustee Act 1975 confers upon the Court the power to grant trustees powers to enter into any transaction not authorised under the trust's terms without requiring the consent of all adult beneficiaries, provided the Court determines that it is expedient to do so. The Bermuda Court has consistently applied section 47 to grant trustees powers to vary not only administrative provisions, but also beneficial interests under a trust.
- Section 4 of the Perpetuities Act 2009 provides the Court a specific streamlined jurisdiction to extend or disapply a perpetuity period of a trust provided the Court determines it expedient to do so. Since 1 August 2009, Bermuda trusts may be established without a perpetuity period, except that Bermuda land may only be held in trust for a maximum of 100 years.
- Section 47A of the Trustee Act (also known as "statutory Hastings Bass") provides the Court the power to set aside a flawed exercise of a fiduciary power if the Court determines that the power holder exercised the fiduciary power without properly considering all material relevant considerations and would have otherwise exercised the power differently, at another time or not at all.
- Bermuda Courts readily grant confidentiality orders (prevent public access to court proceedings and files and anonymising Court lists and judgments) in respect of proceedings concerning the internal administration of trusts, thereby protecting the legitimate interests of families to maintain their privacy.
- Bermuda's laws regarding beneficial ownership registers required for companies, partnerships and limited liability companies reflect that such registers do not serve as a de-facto trust register where there is a trust in such entity's ownership structure.
- Queens Counsel are readily granted access to appear before Bermuda Courts, thereby ensuring that families have maximum access to utilise the best advocates in the world.
Bermuda combines a beautiful island with a strategic and convenient location and extensive direct air connectivity. The island's modern infrastructure and robust legal system provides many of the advantages of an onshore jurisdiction. This, combined with the highest quality of professional services firms, low direct taxation and a high degree of innovation makes Bermuda a particularly attractive jurisdiction to establish trusts and family offices.
Key Trust Legislative Developments Over The Past 30 Years
Trustee Act 1975 amendments:
1999 - The Act was amended to provide trustees powers, subject to a contrary intention expressed in the trust instrument, to (1) exercise a broad range of investment powers that may not have been expressly authorised under the trust instrument; (2) delegate investment management and other powers; (3) advance capital on very flexible terms, including on discretionary trusts; and (4) provide for the appointment (if so provided in the trust instrument) of a managing trustee where certain powers may be reserved to a managing trustee with the other (administrative/custodian) trustee(s) not being liable for the managing trustee's acts or omissions in respect of such powers.
2014 - The Act was amended to introduce s47A (known as "statutory Hastings Bass"), which essentially overturns the UK Supreme Court decision in Pitt v Holt 2013 and restores the "rule in Hastings Bass". Section 47A provides the Court a statutory power to set aside innocent flawed exercises of fiduciary powers if the fiduciary did not take into account one or more relevant considerations and if the fiduciary had done so would have exercised the powers differently, another time or not at all. To exercise its powers under s47A the Court does not need to find the fiduciary liable for a breach of its duties or negligence.
Trusts Special Provisions Act (1989) amendments:
1998 - Non-charitable purpose trusts - Section 12A of the Act was introduced to provide that a non-charitable purpose trust may be created under Bermuda law provided the purposes are (1) sufficiently certain to allow the trust to be carried out; (2) lawful; and (3) not contrary to public policy. A subsequent amendment in 2009 did away with the statutory requirement for an enforcer to be appointed to enforce the purposes of a trust so that, essentially, any person that the Court determines has a "sufficient interest" in the enforcement of the trust may apply to Court to enforce the trust.
2014 - Reserved powers legislation - Section 2A of the Act introduced modern and extensive reserved power trust legislation that essentially enables settlors to reserve to themselves or grant to others one or more of a range of powers without invalidating the trust or the property being deemed to form part of the settlor's estate for the purposes of Bermuda's Wills Act 1998. The legislation also provides extensive protection to trustees for complying with the exercise of reserved and granted powers. Generally, subject to the terms of the trust, powers reserved to the settlor are treated as non-fiduciary powers and powers granted to a non-beneficiary are treated as fiduciary powers.
2020 - Modernised firewall legislation - Sections 10 and 11 of the Act were restated to broaden the scope and simplify firewall provisions. Bermuda law firewall provisions chiefly require Bermuda law to be applied to Bermuda law trusts and to not recognise foreign laws and orders that give effect to foreign forced heirship, matrimonial property or insolvency rights and are inconsistent with Bermuda's firewall provisions. The amendments also expanded the jurisdiction of the Bermuda Court and facilitated the service of proceedings involving Bermuda trusts outside the jurisdiction of Bermuda without the Court's leave.
2020 - Children Act "opt out" - Amendments to the Act and the Children Act 1998 provided draftspersons/settlors the ability to opt out of the default definition of "children" otherwise prescribed by s18A of the Children Act. Subject to the terms of the trust, section 18A of the Children Act defines "children" in a manner to include adopted children or illegitimate children.
Perpetuities and Accumulations 1989:
This Act modified common law rules restricting perpetual trusts and accumulations to enable trusts to be created with trust periods not exceeding 100 years. The impact of this Act was superseded by the Perpetuities and Accumulations Act 2009.
Perpetuities and Accumulations Act 2009:
2009 - Section 3 of the Act provides that Bermuda trusts established from 1 August 2009 are not subject to perpetuity period (except for trusts holding Bermuda land: interests in Bermuda land can only be held in trust up to a maximum of 100 years; or the perpetuity period designated by the trust instrument).
2015 - Section 4 of the Act was amended to provide the Court a streamlined jurisdiction to dis-apply or extend perpetuity period of existing trusts if it determines it expedient to do so. The test for expediency has been considered In the matter of the C Trusts  (See below). Numerous trusts not governed by Bermuda have had their governing law changed to that of Bermuda to utilise this streamlined jurisdiction.
Regulatory Legislative Developments
The Proceeds of Crime (Money Laundering) Regulations 2008 replaced the 1998 anti-money laundering/terrorist financing (AML/ATF) regulations to broaden the range of entities that are regulated and require AML/ATF regulated financial institutions to adopt "risk-based" AML/ATF systems and controls.
Trust (Regulation of Trust Business) Act 2001 and 2002 Exemption Order:
The Act reiterated the requirement for persons carrying on "trust business" in or from Bermuda to be licensed to do so (and have fit and proper controllers and discharge requirements regarding business policies and procedures etc.), unless they benefit from an exemption.
The Trusts (Regulation of Trust Business) Exemption Order 2002 provides several exemptions to the trustee licensing requirement, including an exemption for "private trust business", which is frequently and readily utilised by "private trust companies".
Introduction of requirements for beneficial ownership registers of certain entities (not trusts):
2018 - In response to international initiatives, Bermuda enacted legislation in 2018 (which became operative the following year) requiring certain Bermuda companies, partnerships and limited liability companies to maintain beneficial ownership registers and file beneficial ownership information with the regulator. Beneficial ownership registers are not required to be maintained in respect of Bermuda trusts in Bermuda, nor is the information available to the public. Where a trust forms of the ownership structure, in most scenarios (e.g. discretionary trusts with Bermuda licensed trustees) it is unlikely that settlors, beneficiaries, protectors and other non-trustee power holders would be required to be included in the register. The Bermuda Government has noted that the European Union is due to publish an Implementation Review in January 2022 and has further indicated that, within 12 months of that publication, it will progress proposals to establish public access to beneficial ownership data of companies held on its central register.
Introduction of economic substance requirements for certain entities (not for trusts):
2018 - Also in 2018 (again operative the following year), Bermuda introduced legislation requiring companies, limited liability companies and partnerships that carry on one or more "relevant activities" to comply with Bermuda's economic substance requirements. Acting as trustee is not a relevant activity. It is widely regarded that the activities carried on by a company (including a private trust company) in its capacity as trustee is not regarded as a relevant activity, but one must consider what activity the company carries on its own account.
Amendments to the Digital Asset Business Act 2018:
2019 - Amendments to the Act includes provisions to regulate businesses that qualify as a "digital asset trust services provider" (e.g. a trustee acting on behalf of another person for the purpose of administration or management of trust assets). Private trust companies and underlying companies that hold digital assets on their own account (or licensed trustees that engage a "qualified custodian") to hold digital assets may not require a licence. Further, the Minister of Finance has considerable discretion to significantly reduce licence fees and requirements for Bermuda licensed trustees that determine they may require a licence.
Key Bermuda Trust Court Judgments Since 1991
- Von Knieriem v Bermuda Trust Company Limited & Or (1995) SCB 154 - In this case, the Court considered, in the context of (the "Star Trust I & II litigation") an application to compel an outgoing trustee to transfer shares in an underlying company to the successor trustee, the nature of a protector's power to appoint trustees. The power to appoint trustees was held by the settlor's lawyer. The trust's terms did not state whether the power was fiduciary, personal or otherwise but did indicate that a protector could not be a beneficiary or otherwise benefit from the trust. The Court, after considering the English case of Re Skeats' Settlement (1889) 42 Ch, held that the power was a fiduciary power, largely because the protector was expressly precluded from benefitting from the trust.
- Wingate v Butterfield Trust (Bermuda) Limited  SC (Bda) 67 Civ - Most notably, the Court held (1) it had a discretion whether to order an account in common form at the request of a discretionary beneficiary where it considered it was necessary in the context of Court's jurisdiction to supervise the administration of a trust; (2) that, in the circumstances, a common form account would not provide the applicant any more information than an order for disclosure of trust information and documentation and would not be productive or cost effective; and (3) the trustee was ordered to disclose certain trust information and documents to the applicant.
- Thyseen-Bornemiszca litigation - The proceedings spanned a number of years and involved a dispute of the settlor's (Baron Thyseen-Bornemiszca) attempt to claw-back for his own use from a trust in which he ceased to have an interest, trust property (including a hugely successful iron and steel production business known as the TBG Group) valued in excess of US$2 billion. After particularly significant expenses and monopoly of Court resources in Bermuda over a long period, the case ultimately culminated in a settlement compromise that the trustee's entry into was blessed by the Court.
- Guardian v Bermuda Trust Company  SC (Bda) 54 Civ - Along with a claim for substantive relief as to whether the definition of 'spouse' in an exclusion clause in a trust deed applied to the same individual when she became a widow, the Court also considered an application that the judgment should not be published or, if it should, that it should protect the privacy of the beneficiaries. In holding that the decision should be published but anonymised, Kawaley J referred to Bermuda's status as an offshore domicile and stated that the Court was: "bound not just to sympathetic privacy needs of those who establish trusts there, but also the need to promote the development of Bermuda trust law as well." This approach has been substantively reflected in many decisions of Bermuda court relating to Bermuda trust, including that of GIHL v KL & Ors below.
- BQ, CQ -v- DQ, EQ and Ors (AQ Revocable Trusts)  SC (Bda) 40 Civ - The Court granted the applicants' (who were two of the settlor's sons) application for declarations that trusts established by the settlor for the benefit of his sons and grandchildren were invalid. The Court held that the trust "agreements" (which were revocable and made by the settlor in his personal capacity and as trustee) were testamentary in nature and revoked by his subsequent wills and further did not evince an intention to fetter his unhindered control and enjoyed the benefit of the so-called trust assets during his life-time. The Court further held that s2(3) of the Trusts (Special Provisions) Act 1989 (inter alia that the reservation by a settlor of certain rights and powers are not necessarily inconsistent with the existence of a trust) acknowledged the common law position.
- GIHL v KL & Ors  SC (Bda) 23 - In this case Bermuda's Supreme Court varied beneficial interests of a Bermuda law trust. It did so, not by the operation of s48 of the Trustee Act 1975 (which largely reflects s57 of the English Trustee Act) which provides the Courts the power to approve a variation on behalf of a minor, unborn or unascertained beneficiaries, but by s47 Trustee Act. Section 47 of the Trustee Act provides the Court with the power to authorise transactions relating to trust property, where the trust instrument does not provide the trustee the power to carry out the proposed transaction. The decision established that s47 of the Trustee Act provides the Court with much wider powers than its counterpart (under s57 of the English Trustee Act) as it provides the Court the power to authorise transactions that effect a variation of beneficial interests under a trust. Section 47 of the Trustee Act has subsequently consistently been used to bring about the variation of beneficial interests in trusts (without all adult beneficiaries' consent), extend perpetuity periods and substantively modify the terms of trusts. Re ABC Trusts  Bda LR 89 is another oft quoted decision where s47 was utilised.
- Stiftung Salle Modulable et al v Butterfield Trust  SC (Bda) 13 Com - Following a six week trial, the Court held, applying Swiss law, that it was an implied term of a Swiss law governed "donation contract" (for the construction of a EUR120million opera house) that the trustee was entitled to terminate the contract upon reasonable notice and for any bona-fide reason (and notwithstanding the settlor remained in favour of the project prior to his death).
- Re Information about A trust  Bda LR5 - Bermuda's Court of Appeal held that a provision in trust instrument to restrict disclosure of information to beneficiaries did not oust the supervisory jurisdiction of the Court and was valid. Under the trust's terms the trustee required the consent of the protector (who was initially not a beneficiary, but the successor protector was a primary beneficiary and son of the settlor) to disclose information (including the terms of the trust and trust accounts) to beneficiaries. The trust's terms provided that the protector's veto power was a non-fiduciary power. However, the Court nevertheless held that the "information control mechanism" was not being operated in a manner substantially consistent with the presumed intention of the settlor. The Court held the presumption in favour of disclosure of trust accounts and certain other trust documents ought to be ordered to another beneficiary (also a son of the settlor, with a substantial contingent interest in the trust fund) subject to appropriate safeguards.
- Re F Trust and the A Settlement  Bda LR 116 - The Bermuda Supreme Court applied s47A of the Trustee Act to, on application by the trustees of a Bermuda law trust, set aside a flawed exercise of power by the trustees which would (if not set aside) result in significant unintended and unforeseen UK income tax charges upon the beneficiary in receipt of the distribution and the trustees would not have exercised the power as it did (or at all) if they had been aware of such tax consequences.
- In the matter of the C Trust  53 Civ - This was the first case regarding a disapplication or extension of a perpetuity period following the Court being provided specific jurisdiction and unfettered discretion to determine such applications with the introduction of s4 of the Perpetuities Act 2009. The Court accepted that the main purpose of s4 of the Perpetuities Act 2009 was to create a more simplified means of extending trust periods (for trusts established by instrument prior to 1 August 2009) than was available under existing law (where a relatively more cumbersome process by way of an application under s47 of the Trustee Act 1975 was required). The test the Court applied to determine whether to disapply or extend a perpetuity period was one of expediency, and in this regard the Court noted: (1) the Court should have regard to the best interests of all interested parties, broadly defined as looked at as a whole; and (2) the fact that extending the duration of a trust will dilute the economic interests of existing beneficiaries will ordinarily be an irrelevant consideration.
- In the matter of the G Trusts  Bda LR 124 - The Court affirmed the continuing importance of privacy in respect of internal trust affairs. Kawaley CJ said forcefully: "The present proceedings concern the internal administration of a private trust into which the general public have no right to pry. Persons administering, interesting, 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 peacefully enjoy their actual and contingent property rights, has a venerable legal basis. The existing practice will continue to be applied in appropriate cases."
- Meritus Trust Co. Ltd v Butterfield Trust (Bermuda) Ltd  SC (Bda) 82 Civ - The Court held that under the statutory vesting provisions in section 27 of the Trustee Act, given the nature of the trust assets in this case, a deed of appointment and removal of trustees vested the trust assets in the appointed trustees and the removed trustee had no right to (1) retain trust assets in respect of known actual or contingent liabilities; or to (2) require a contractual indemnity from the new trustee unless it is expressly provided in the trust deed that this requirement exists. There were threatened claims against the removed trustees who had sought to retain US$5m in trust assets for a disputed estimated potential liability of US$750,000.
- In the matter of XYZ Trusts  SC (Bda) 2 Civ - The Court notably construed s3 of the Perpetuities Act 2009 to disapply the common law "relation back doctrine" (that an instrument exercising a power conferred by a settlement takes its character from the original settlement). Consequently, the Court held s3 operated to not only disapply the rule of perpetuities in Bermuda to trusts (except in respect of Bermuda land) created by instrument dated after 1 August 2009 but to instruments made post 1 August 2009 in exercise of a power created by a pre- 1 August 2009 instrument. Prior to 1 August 2009, with certain limited exceptions (e.g. for charitable trusts), the maximum perpetuity period for Bermuda law trusts was 100 years. In this case the settlements were originally established well before 1 August 2009 as Cayman law "star trusts" (and not subject to a perpetuity period under Cayman law) and after 1 August 2009 the governing law was changed to that of Bermuda. The Court indicated it would have exercised s4 of the Act to disapply any applicable Bermuda perpetuity period if need be.
- In the matter of the C Trust  SC (BDA) 444 App - The Court exercised its powers under s31(1) of the Trustee Act to appoint a new trustee. Up until that point, the trustee being appointed by the Court had been a de-facto trustee because an earlier attempt to appoint it by deed had been defective. The Court held that the new trustee (who had been acting in good faith) could continue to administer the trust as though it had been properly appointed by the earlier attempt. However, beyond that, the Court did not relieve the new trustee from any breach of trust that it may otherwise have committed.
- Ashley Dawson-Damer and Lyndhurst Limited  (Bda) 72 Civ - This decision may be the first time the Bermuda Court granted an interim preservation order over disputed trust assets pending the outcome of foreign proceedings. The Court granted the injunction to preserve the disputed trust assets and compelled the respondent (a Bermuda private trust company) to provide certain information about the Bermuda law trusts, but only on the undertaking that the applicant issue freestanding injunction proceedings in Bermuda.
- GRT & Wang Family Trusts. Civil Appeal. No. 5A of 2019 - The Trustee (i) amended GRT Trust to add Grand View PTC as trustee of the Wang Family Trust (a purpose trust) as a beneficiary and excluded existing and default beneficiaries and then (ii) appointed the entire GRT Trust fund to the Wang Family Trust. Bermuda's Court of Appeal, overturning the Supreme Court decision, held: (1) that there was no rule that prohibited powers of amendment or addition being exercised in a manner that alters the "substratum" (underlying purpose) of a trust, not necessary/appropriate to imply a restriction on a clear express power; (2) the trustee had acted within scope of the power of amendment/addition; (3) the trustee had not exercised its powers of amendment/appointment for an ulterior purpose (i.e. not a "fraud on a power"); and (4) the appointment was not invalidated by reason of the Wang Family Trust having no perpetuity period (the GRT Trust had perpetuity period of 100 years).
- In the matters of FA & FB Trusts  SC (Bda) 59 Civ - Exercising its inherent supervisory jurisdiction, the Court upheld the trustee's application, with beneficiaries' support, to remove as protector a US lawyer who had been subject to censure proceedings by the New York Bar Association and the successor protectors that had been nominated by the protector (namely his wife, also a lawyer, and his son). Neither the protector nor his family were beneficiaries of the trusts. The Court held the test it had to apply was the same as in an application to remove trustees (i.e. would the protector's continuation in office be detrimental to the due execution of the trust) In an earlier decision in interim proceedings in respect of these trusts, the Court rejected the protector's application for "contemporaneous" payment of expenses (as appeared to be provided in the trust instruments) in defending trustee's substantive application on the basis that it was implicit that the protector must properly incur the expenses in order to be reimbursed for them and that could only be determined upon determination of the substantive removal application.
- X Trusts  SC (Bda) 72 Civ 7 - The Supreme Court held that, subject to the trust's terms, protectors with veto powers do not have independent discretion and are only required to review trustee decisions and only veto a trustee decision if the trustee acted unreasonably. Interestingly, the Jersey court in the case of Re Piedmont and Riviera Trust  JRC 248 came to a different decision. The Jersey Court held that there was no reason to imply restriction on a clear express power because there were good reasons to give protector independent powers, whilst a trustee nevertheless retains primary discretion. The Bermuda X trust decision is on appeal.
30 years is a long time and Bermuda's trust and related regulatory laws have undergone significant development in that period. Bermuda's Courts, staffed with talented internationally recognised judges, have thoughtfully developed Bermuda's trust law to address new and evolving issues. It is hoped that this paper provides a solid introduction to those who wish to consider developments relevant to Bermuda trust law over the past 30 years.
An original version of this article was first published by IFC Review, June 2022.