A Ltd and Anor v C et Al

• Jurisdiction: Bermuda
• Judge: Hargun CJ,Mussenden J
• Judgment Date: 29 November 2023
• Neutral Citation: [2022] SC Bda 93 Civ
• Docket Number: CIVIL JURISDICTION,CIVIL JURISDICTION 2022: No. 53
• Court: Supreme Court (Bermuda)
• Year: 2022

In the Matter of the B Trusts

Between:

A Limited and Anor

Plaintiffs

and

C et al

Defendants

BM 2022 SC 94

[2022] SC (Bda) 93 Civ.

Before:

The Hon. Chief Justice Hargun

CIVIL JURISDICTION

2022: No. 302

In The Supreme Court of Bermuda

Application for the court's blessing of the trustee's decision under Public Trustee v Cooper (category 2); application for variation of the trust instrument under section 47 and section 48 of the Trustee Act 1975

Representation:

Mr Ben Adamson of Conyers Dill & Pearman Limited for the Trustees

Ms Claire van Overdjik of Carey Olsen Bermuda Limited for certain adult members of the Exiting Branch of the family

Mr David Kessaram of Cox Hallett Wilkinson Limited for Mr Matthew Watson in his capacity as Guardian ad litem of the Exiting Branch minor and as representative of the unborn children and remoter issue of C and unascertained possible future husbands, wives, widowers and widowers of C and his children (born or unborn)

Mr Sam Riihiluoma of Appleby (Bermuda) Limited for the members of the Remaining Branches of the family

Ms Fozeia Rana-Fahy of MJM Limited for the Guardian ad litem of the minors in the Remaining Branches and representative of the unborn children and remoter issue of J, U and W and the unascertained possible future husbands, wives, widowers and widows of J, U and W and their children (born or unborn)

Hargun CJ

Introduction

1 In these proceedings, commenced by Originating Summons, two trustee companies incorporated in Bermuda (“the Trustee companies”), acting as trustees of two related family settlements governed by Bermuda law ( “the Trustees” and “the Trusts”) seek:

• (1) Directions from this Court that the Trustees be at liberty to proceed with Project X (as described below).

• (2) Orders in support of such directions to facilitate the implementation of Project X.

• (3) Approval from this Court of the proposed variations of the Trusts and appointments pursuant to sections 47 and/or 48 of the Trustee Act 1975 (“the 1975 Act”).

2 At the conclusion of the hearing the Court was satisfied that it was appropriate to make a number of orders including the order that the Trustees of the Trusts be authorised to do acts and things they consider necessary or desirable to implement Project X. This judgment sets out the principal reasons for making the orders under sections 47 and 48 of the 1975 Act.

Background

3 The background to these proceedings is set out in an affidavit filed by a director of the Trustee companies (“the Affidavit”). In the Affidavit evidence it is explained that in broad terms, the Trusts are discretionary trusts governed by the laws of Bermuda. They are fully managed and administered in Bermuda. As a result of the developments which have taken place, the current position is that the classes of discretionary objects of those Trusts (those expressions including their respective appointments) are identical.

4 In relation to one of the Trustee companies the bye-laws permit each branch of the family to appoint one director. There are also three independent directors. Whilst most decisions are determined by a majority vote and accordingly include the family directors or their representatives, certain reserved matters are subject to weighted voting. Such reserved matters include: distribution of income or capital to beneficiaries of the Trusts; proposals to amend the bye-laws or memorandum of association; proposals to alter the company's share capital; and proposals to terminate any of the Trusts. In relation to these matters, the resolution can be passed only with the unanimous support of all voting independent directors. In relation to the other Trustee company the same independent directors constitute its board of directors without any participation from the family members.

5 The family regards itself as being divided into a number of separate “branches”, each consisting of one of the children of the settlor of one of the Trusts, together with each of their respective spouses, children and remoter issue (and any spouses of those children and remoter issue).

6 The most valuable asset of the Trusts, by a significant margin, is an indirect controlling shareholding in a Bermuda registered company which is the ultimate holding company of the “Family Group”, a group of companies engaged, inter-alia, in the multinational fashion accessory business. The most recent valuation of the Family Group placed its value in the range of many hundreds of millions of USD.

7 In recent years, according to the Affidavit evidence, it has become apparent that one branch of the family (the “Exiting Branch”) has wished for funds to be invested otherwise in the business of the Family Group. The Exiting Branch have expressed concerns about that the strategy and anticipated future performance of the Family Group. The other branches of the family (the “Remaining Branches”), as well as the independent directors of the Trustee companies, support the continued investment in the business of the Family Group and do not share the Exiting Branch's concerns about the long-term profitability and strategic approach. There has therefore been considerable tension as to the appropriate use of the Trust funds.

8 Relations between the Exiting Branch and other branches of the family had become strained, in part as a result of these differences in opinion about the business of the Family Group, but also as a result of natural personal differences and conflicts that develop over time within an expanded family.

9 The independent directors support the continued investment in the business of the Family Group taking into account the settlor's letters of wishes, the strategic reports that they have reviewed and their discussions with the board members and key personnel of the main company within the Family Group.

10 Given that there was a clear difference in opinion between the Exiting Branch and the Remaining Branches, the independent directors considered the separation of the notional discretionary interests of the Exiting Branch from the other branches. In May 2022, the independent directors took the decision that it would be in the best interests of the beneficiaries as a whole to take comprehensive advice and prepare detailed plans for the separation of the discretionary interests of the Exiting Branch from the Trusts and, following a final appointment to the Exiting Branch, to enable the Exiting Branch to invest their nominal share of the trust funds separately (“Project X”).

11 Given that one of the key aspects of Project X is that the Exiting Branch will be excluded from the classes of discretionary beneficiaries of the Trusts, the Trustees will require an express power to exclude an individual from the class of potential beneficiaries, or to change the membership of the beneficial class. However, the Trust instruments, which are governed by Bermuda law, do not grant the Trustees either of these powers. The Trustees therefore seek to vary the terms of the Trusts to add an express power to exclude one or more potential beneficiaries.

12 There are therefore two elements to the applications: an application for blessing of the Trustee's decision to implement Project X and, second, an application for the exercise by the Court of its statutory powers to enable the Trustees to vary the beneficial class, which is a pre-condition of Project X.

Court's blessing of the Trustees' decision to implement Project X

13 The Trustees have decided that Project X is in the interests of the beneficiaries as a whole. They have taken detailed advice from a number of professional advisers in multiple jurisdictions including Conyers Dill & Pearman Limited in Bermuda, Macfarlanes LLP in England, McDermott Will & Emery in the US, Miller Thomson LLP, Fasken Martineau DuMoulin LLP and PricewaterhouseCoopers LLP in Canada; and Oberson Abels SA in Switzerland. The Trustees also instructed Perella Weinberg Partners to provide a valuation and strategic alternative update which explained how the Family Group's business could be valued. It is clear from the Affidavit evidence that Project X is a complex and sophisticated arrangement, which has taken time and care to construct.

14 Given that it is a momentous transaction, the Trustees come to this Court for blessing of their decision. It is to be noted that in so far as the Trustees currently have power to implement Project X, they have not surrendered their discretion in exercising those powers. Accordingly, this is a “Category 2” blessing application as analysed by Hart J in Public Trustee v Cooper [2001] WTLR 901.

15 The Court's function in the present application (Category 2) is summarised in Lewin on Trusts (20 ^th Edn) at 39–095 in the following terms:

“The court's function where there is no surrender of discretion is a limited one. It is concerned to see that the proposed exercise of the trustee's powers is lawful and within the power and that it does not infringe the trustee's duty to act as ordinary, reasonable and prudent trustees might act, ignoring irrelevant, improper or irrational factors; but it requires only to be satisfied that the trustees can properly form the view that the proposed transaction is for the benefit of the beneficiaries of the trust estate, that the proposed exercise of their powers is untainted by any collateral purpose such as might amount to a fraud on the power, and that they have in fact formed that view, in other words, once it appears that the proposed exercise is within the terms of the power, the court is concerned with the limits of rationality and honesty; it does not withhold approval merely because it would not itself have exercised the power in the way proposed.”

16 In Re the R Trust [2019] Bda LR 39 this Court followed the analysis of Vos LJ in Cotton v Earl of Cardigan [2014] EWCA Civ 1312, where Vos LJ held that the court had to be satisfied,...