17 December 2015

Withers represents beneficiaries of two trusts in landmark decision in Bermuda


In England and Wales the final death knell sounded for the rule in Re Hastings Bass deceased1 following the decision of the Supreme Court2  in Pitt v Holt and Futter v Futter (which considered the decision of the Court of Appeal3). Consequently, trustee decisions could no longer be set aside where they have been made within the fiduciary's powers and in accordance with professional advice, even where such advice may have been wrong.

Jersey was the first to react to this4. In July 2014, Bermuda also introduced5 a new provision – section 47A of the Trustee Act 1975 – to allow the Court to set aside the flawed exercise of a fiduciary power. No attribution of blame is necessary; it is however necessary to establish that the power holder took into account an irrelevant consideration or failed to take into account a relevant consideration, and would otherwise not have exercised the power, or would have exercised it on a different occasion or in a different manner.

Notably, the Trustee Amendment Act which brought the provision into force has retrospective effect so a decision can be set aside regardless of whether it was made before or after the operative date of 29 July 2014.

The new provision has now been invoked for the first time, by the Supreme Court of Bermuda In the Matter of the F Trust and In the Matter of the A Settlement. Withers were – alongside Cox Hallett Wilkinson Limited in Bermuda – advising the second and third defendants who were appointed to represent the interests of all adult, minor, unborn and unascertained beneficiaries.

The case concerned two Bermuda trusts, where the appointments of a UK resident trustee (in 2005 by the trustees of the F Trust and in 2008 by the settlor of the A Settlement) had led, or potentially would lead, to adverse UK tax consequences. The trustees gave evidence that the UK resident trustee was appointed as trustee of the F Trust pursuant to the wishes of the Settlor that at all times there should be at least three trustees. Further, the trustees gave evidence that neither UK tax advice nor any legal advice was thought to have been sought before the appointments were made for either the F Trust or the A Settlement. No evidence could be adduced by the settlor who had died in 2011.

In June 2015, the trustees (other than the UK resident trustee) sought orders setting aside the Deeds of Appointment and Retirement of Trustees to the extent that the UK resident trustee had been appointed.

The application was not opposed. HMRC was given notice of the proceedings and although it raised queries with the plaintiffs' London solicitors, it did not elect to intervene and be heard. Relevant correspondence was however placed before the Court so that HMRC's points could be taken into account.

The power to appoint trustees was – as it has been for many years in many cases – held to be a fiduciary power and therefore relief under section 47A in the form of the Court's unfettered statutory discretion was available.

The Chief Justice accepted that as the appointments had both been made without the benefit of any UK tax or legal advice, there was 'clear evidence of a failure to take into account financially significant factual and legal considerations which were relevant to the exercise of the power'. He further accepted that 'it was equally clear that [the UK resident trustee] would not have been appointed had the appropriate advice been sought and received' .

Referring to the Court's unfettered statutory discretion, the Chief Justice viewed it as unnecessary to formulate any particular test but accepted that for the time being it should be applied on the facts of each particular case. Accordingly, he set aside the 'flawed exercise of the powers of appointment'. [7]

The case marks a useful return for the so-called 'rule in Hastings Bass' so far as Bermuda law trusts are concerned and will be of assistance to trustees, potential advisers and beneficiaries in finding a quicker and more comprehensive solution to undoing errors that occur in the administration of a trust.

 Footnotes:

[1] [1975] Ch 25

[2] [2013] UKSC 26

[3] [2011] EWCA Civ 197

[4] With The Trusts (Amendment No 6) Jersey) Law 2013

[5] By virtue of the Trustee Amendment Act 2014

[6] See paragraph 22 of the judgment

[7] See paragraphs 26 and 27 of the judgment

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Category: Article