BVI Trust Law
With a highly regarded and flexible legislative regime, the BVI is an increasingly popular jurisdiction for the establishment of trusts, but there remain relatively few reported decisions from the BVI Courts on questions of trust law. Following a somewhat controversial decision of the BVI Commercial Court in 2013, which had hinted at a slight departure from English common law principles on the scope of powers of appointment, the Eastern Caribbean Court of Appeal has now brought the BVI back into line with other offshore trust jurisdictions in this area. In so doing it has sent a strong message that English common law principles should usually be applied to questions relating to BVI trusts.
First instance decision
In Royal Fiduciary Group Limited (re. The New Huerto Trust) (BVIHC (COM) 112 of 2013), the applicant trustee sought the BVI Commercial Court’s approval for its exercise of a power of appointment under a trust deed so as to exclude the settlor as a beneficiary of the trust. The two classes of beneficiaries were (1) the settlor and (2) the settlor’s children and remoter issue. The trustee’s decision to exclude the settlor as a beneficiary was motivated principally by a freezing order issued by the English High Court in matrimonial proceedings against the settlor, which arguably applied to the trust’s assets. The exclusion of the settlor would therefore protect the interests of the other beneficiaries.
The power of appointment was contained in the following clause of the trust deed:
“THE Trustees STAND POSSESSED of the Trust Fund and the income thereof UPON DISCRETIONARY TRUSTS for the benefit of the Beneficiaries or any one or more of them exclusive of the others in such shares and proportions and subject to such terms and limitations and with and subject to such provisions for maintenance, education or advancement or for accumulation of income during minority or for forfeiture in the event of bankruptcy or otherwise and such other conditions as the Trustees may from time to time appoint by Deed revocable or irrevocable executed before the Vesting Day.” (emphasis added)
Relying on this clause (in the absence of a specific power of exclusion under the trust instrument), the trustee sought to execute a deed of appointment containing the following wording:
“The Appointor, in exercise of the power in clause 2 of the Trust and of every other power it enabling, hereby declares that the Appointor shall continue to hold the Trust Fund and the income thereof upon, with and subject to all of the trusts, powers and provisions of the Trust and of the September 2010 Deed, but as if the trust, powers and provisions of the trust had been varied as follows:
(1) in the place of the wording of clause 1 a) of the Trust there was substituted the following:
“a) “the Beneficiaries” means the children and remoter issue of the Settlor born after 6 December 2002 and who presently comprise the Settlor’s three sons …”
The effect of the omission of the Settlor from the definition of “the Beneficiaries” was to exclude him from further benefit under the Trust.
The trustee argued that this was an appropriate use of the power of appointment, and relied upon two English Court of Appeal decisions, Blausten v Inland Revenue Commissioners [1971] 1 WLR 1696, and Muir v Inland Revenue Commissioners [1966] 1 WLR 1269 as authority for that proposition.
At first instance, Bannister J ruled that the English Court of Appeal’s decision in Blausten was “obviously wrong” and distinguished the Muir decision. The Judge ruled that the power of appointment simply gave the trustee the power to appoint capital and income, and not to reappoint the trust assets on discretionary trusts. He was also not persuaded that the Blausten decision was necessarily accepted as authority for the particular point in question. Tellingly, the Judge concluded, despite being told that Blausten is regularly relied upon by English practitioners as authority for this point, that “I am not told that it has ever been relied upon in this jurisdiction and no decision of mine will have any effect in England, so that a refusal to follow Blausten here will not impact upon what I am told is English practice.”
Appeal
The trustee appealed this decision on a number of grounds. In a judgment delivered on 26 October 2015 (BVIHCMAP 2013/0022), Justice of Appeal Mario Michel upheld the appeal, applying both the Blausten and Muir decisions, and ruling that:
“I see no reason based on principle, in terms of the powers of trustees in the exercise of powers of appointment under a trust deed, why the trustee in this case could not properly exercise the power of appointment conferred on him by the trust instrument in excluding the settlor from benefiting under the trust, with the resulting increase in the property interests available for distribution to the children and remoter issue of the settlor, who are obviously the intended beneficiaries of the settlor’s benefaction. And… why the trustee could not exercise this power of appointment even in advance of appointing any property interests to the other objects of the trust.”
Michel JA went on to say:
“Bannister J [Ag.], as a judge of the High Court of the Eastern Caribbean Supreme Court sitting in the Commercial Court in the British Virgin Islands, is of course not bound by the decisions of the English Court of Appeal, even on the same issue which he is adjudicating, but decisions of that court, although not binding precedents, have always been treated as persuasive authorities in the British Overseas Territory of the Virgin Islands and ought in my view to be so treated on the point in issue in this case.”
Discussion
Trust practitioners will be interested in this outcome, given that the first instance decision marked a departure from accepted law and practice in other offshore jurisdictions, where it is accepted that powers of appointment can be invoked to exclude beneficiaries and to introduce other important changes to trust instruments.
As the Court of Appeal indicated, the BVI Court is not bound to defer to English authority, and practitioners should not always expect that BVI trust law will dogmatically follow English trust law. However, given that decisions from the BVI courts on trust issues are relatively few and far between (and as in other jurisdictions many decisions in this area are unreported), the Court of Appeal’s decision is helpful in that it not only re-affirms that BVI law will follow English law on this particular point (and brings the BVI back into line with other offshore trust jurisdictions including Cayman, Jersey and Guernsey) it will also provide reassurance more generally that English case law should generally be followed in trust matters. This will provide comfort to practitioners and build on the growing confidence in the BVI as an established and reliable jurisdiction for the establishment and administration of trusts.
