Created Date:
13 April 2022
Location Bermuda header image

Important propositions in relation to section 47 applications arising from In The Matter The XYZ Trusts

The Ruling of Mrs. Justice Shade Subair Williams of the Bermuda Supreme Court In The Matter The XYZ Trusts was issued on 16 February 2022. The case highlights the following important legal propositions:

  1. section 47 applications may be made in series for the blessing of various stages of a large transaction;
  2. the category 2 test recognised by the English High Court in Public Trustee v Cooper [2001] WTLR 901 was re-affirmed; and 
  3. the variation of a trust pursuant to a section 47 application will not create a new settlement.

Section 47 of the Bermuda Trustee Act 1975 allows the Court to authorise transactions relating to trust property. It gives the Court power, where it considers it expedient to do so, to confer on trustees the necessary power for purpose where it is otherwise absent. For example, it may be used to vary beneficial and administrative provisions or grant a power to appoint new trustees.

In The Matter The XYZ Trusts is a rags to riches story of a self-made businessman of humble beginnings who emigrated to England in the 1930’s. He entered the construction industry, built an excellent reputation for himself and grew a very large business in London which expanded over time to a group of companies across Britain and several other jurisdictions. Over the years more than 20 offshore trusts were established to hold the assets that had accumulated. The beneficiaries of the trusts are the children and grandchildren of the businessman.

After several years of disagreement over the trusts, the trustees proposed a restructuring of the trusts and their holdings. A series of three section 47 applications were undertaken, all working towards and approving various stages of a re-structuring of the trusts to allocate the assets into several sub-funds for three different branches of the family.

The first two section 47 applications sought approval of the Court of the early stages of the restructuring. The first application sought approval of the trustees' decision to develop a comprehensive plan for the re-structuring of the trusts.  On 10 October 2016 Dr Chief Justice Ian R.C. Kawaley (as he then was) ordered (the 2016 Order) that the trustees were at liberty to develop proposals for re-structuring the trusts' assets and the trustees, following ongoing consultation with the adult beneficiaries, went on to produce a Proposed Asset Allocation as sanctioned by the 2016 Order. This, however, resulted in some discord within the family which caused the trustees to make a second section 47 application.  In this second application the trustees sought approval for the development of detailed proposals from the proposed asset allocation, which Kawaley CJ made an order in favour of on 12 December 2017. 

In the third section 47 application the trustees asked the Court to confirm its blessing for the trustees to implement their final detailed proposals. In finding in favour of the trustees in this third section 47 application Williams J approved a significant re-structuring of the trusts, amendments and the modernization of the trusts’ terms and granted in principle an extension of the trusts’ termination dates.

In making the various rulings in XYZ Trusts the Court re-affirmed the category 2 test recognised by the English High Court in Public Trustee v Cooper that it has the jurisdiction to bless the "momentous decisions" of a trustee and in this way protect the decision from a future attack as a breach of trust. In reaching its conclusion the Court recognised and re-affirmed the four questions to be asked when approaching such applications, as follows:

  1. Do the trustees have the power to enter into the proposed compromise or transaction?
  2. Is the Court satisfied that the trustees have genuinely formed the view that the compromise or transaction is in the interest of the trust and its beneficiaries?
  3. Is the Court satisfied that this is a view that reasonable trustees could have properly arrived at?
  4. Does the Court consider that any of the individual trustees have any actual or potential conflict of interests and, if so, does it consider that this conflict prevents the Court from approving the unanimous decision of the trustees?

Finally, a very important aspect of the case is that Williams J was asked to find that the proposed restructuring did not constitute the creation of new settlements. Williams J in her Ruling followed several leading English cases dealing with construction of trusts being Roome v Edwards [1982] AC 279, a House of Lords decision, Bond v Pickford [1983] STC 517, a Court of Appeal decision and Swires v Renton [1991] STC 490, a Chancery Division decision. She said, “As I see it, this seemingly technical question should be treated with a high dose of common sense and practicality.” She viewed the jurisdiction of section 47 in XYZ Trusts as enlarging the trustees’ powers in order to allocate the existing trust assets among the different branches of the family for their protection and benefit without creating a new settlement. This very helpfully provides authority that undertaking the variation of a trust pursuant to a section 47 application will not create a new settlement.

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