Re F Trust

• Jurisdiction: Bermuda
• Judgment Date: 13 November 2015
• Neutral Citation: [2015] SC Bda 77 Civ
• Date: 13 November 2015
• Docket Number: CIVIL JURISDICTION 2015: 206 2015: 207
• Court: Supreme Court (Bermuda)

[2015] SC (Bda) 77 Civ

In The Supreme Court of Bermuda

CIVIL JURISDICTION 2015: 206 2015: 207

In the Matter of the F Trust

and

And in the Matter of the A Settlement

Mr Keith Robinson, Appleby (Bermuda) Limited, for the Plaintiffs

Mr Craig Rothwell, Cox Hallett Wilkinson Limited, for the 2 ^nd and 3 ^rd Defendants

The 1 ^st Defendant did not appear

RULING

(in Chambers)

Introductory

1 By Originating Summonses issued on June 8, 2015 in each of the two related actions by the same Plaintiffs, three Trustees of the F Trust and the A Settlement (‘the Trusts’) sought Orders setting aside Deeds of Appointment and Retirement of Trustees executed in 2005 and 2008, respectively, to the extent that they appointed the 1 ^st Defendant (‘D1’) as a Trustee. Each Summons invoked section 47A of the Trustee Act 1975 and/or the inherent jurisdiction of the Court.

2 On June 25, 2015, the first return date of the Originating Summons, the 2 ^nd and 3 ^rd Defendants were appointed to represent the interests of all adult, minor, unborn and unascertained beneficiaries. The Plaintiffs' substantive application was not in the event opposed. On September 23, 2015, I ordered in each case that;

‘ The Deed of Retirement and Appointment of Trustees…be set aside in so far as that deed appointed [D1] as a Trustee…( to the intent that for all purposes the appointment of [D1] as a trustee shall be treated as never having occurred)…’

3 I now give reasons for that decision.

Factual findings

4 The F Trust was established in Bermuda with a corporate trustee in 1958 and the A Settlement was established in Bermuda with the same corporate trustee in March 1968. Individual trustees were subsequently appointed before D1, a British resident, was appointed in 2005 (by the 1 ^st and 2 ^nd Plaintiffs) and in 2008 (by the Settlor) as trustee of the F Trust and A Settlement respectively. The Settlor died in 2011.

5 The combined assets held by the Trusts are estimated to be worth in excess of $50 million. The 2 ^nd Plaintiff deposed that he and the 1 ^st Plaintiff appointed D1 as a trustee of the F Trust after another trustee died having regard to the wishes of the Settlor that at all times there should be at least three trustees. Despite some anxiety on the 2 ^nd Plaintiff's part about the UK tax implications, neither UK tax advice nor any legal advice was sought. The 2 ^nd Plaintiff believes that the Settlor obtained no advice before appointing D 1 as trustee of the Settlement three years later.

6 As regards the F Trust, the adverse UK tax implications were only immediate as regards income tax. However, more significantly, capital gains tax (‘CGT’) consequences did not bite until 2007, two years after the appointment. I was satisfied by evidence placed before the Court that at the time of the exercise of the power of appointment, public consultations in the UK on the proposed CGT changes which were brought into effect two years later were already in train. It was accordingly clear that had tax advice been sought prior to the appointment of D1 in 2005, the appointment would not have been made.

7 As regards the A Settlement appointment, made in 2008, the adverse tax consequences were immediate.

8 The Plaintiff Trustees subsequently made voluntary disclosure to HMRC (Her Majesty's Revenue and Customs) and met the assessed UK tax liabilities. They nevertheless now wished, quite understandably, to return the Trusts to their original tax status, namely outside of the ambit of the UK tax regime. In these circumstances, the Plaintiffs very properly accepted that in seeking to set aside the appointment of D1 ab initio, HMRC should be given notice of the present proceedings and an opportunity to appear in opposition to the relief sought.

9 On June 25, 2015, I directed that HMRC should be notified within seven days that should it wish to intervene it should do so by application no later than July 15, 2015. HMRC raised various queries about the present proceedings with the Plaintiffs' London Solicitors, Macfarlanes, and the time for HMRC to intervene and the effective hearing date of the Originating Summons were both extended until the effective hearing date of September 23, 2015 was eventually fixed.

10 The Plaintiffs' counsel placed the correspondence with HMRC before the Court so the Court could take into account the queries raised about the application even though HMRC had elected not to intervene and be heard.

11 I rejected the suggestion that no flawed exercise of the appointment power could be relied upon as regards the F Trust because at the relevant date no adverse CGT consequences immediately arose. As noted above, it was clear that any reasonably competent tax advisor in 2005 would have been likely to point out that D1 would likely be caught in the new legislative net at some point when proposals then under discussion were finalised and brought into legislative force.

Legal findings

12 The Plaintiff Trustees sought relief under section 47A of the Trustee Act 1975, enacted with effect from July 29, 2014 by the Trustee Amendment Act 2014. Mr Robinson referred the Court to the Explanatory Memorandum to the Trustee Amendment Act 2014 Bill, which crucially provides as follows:

‘ Clause 2 inserts a new section 47A in the Act to introduce the Rule in Re Hastings-Bass as it was understood and applied in England (and in other common law jurisdictions) in and prior to 2011. The new section 47A will confer a discretionary jurisdiction on the court to intervene in certain limited circumstances in relation to the exercise of a fiduciary power. Such discretionary exercise of power will be subject to the court's discretion with respect to equitable relief.’

13 The Explanatory Memorandum to the Bill, the enactment of which brought section 47A into force, makes it clear that Parliament intended to give statutory force to the legal rules on setting aside the exercise of a fiduciary power before the English Court of Appeal decision in Futter-v-HMRCandPitt-v-HMRC [2011] EWCA Civ 197.

14 Section 47A provides as follows:

‘ Jurisdiction of court to set aside flawed exercise of fiduciary power 47A (1) If the court, in relation to the exercise of a fiduciary power, is satisfied on an application by a person specified in subsection (5) that the conditions set out at subsection (2) are met, the court may—

(a) set aside the exercise of the power, either in whole or in part, and either unconditionally or on such terms and subject to such conditions as the court may think fit; and

(b) make such order consequent upon the setting aside of the exercise of the power as it thinks fit.

(2)The conditions referred to in subsection (1) are that—

(a) in the exercise of the power, the person who holds the power did not take into account one or more considerations (whether of fact, law, or a combination of fact and law) that were relevant to the exercise of the power, or took into account one or more considerations that were irrelevant to the exercise of the power; and

(b) but for his failure to take into account one or more such relevant considerations or his having taken into account one or more such irrelevant considerations, the person who holds the power—

(i) would not have exercised the power;

(ii) would have exercised the power, but on a different occasion to that on which it was exercised; or

(iii) would have exercised the power, but in a different manner to that in which it was exercised.

(3) If and to the extent that the exercise of a power is set aside under this section, to that extent the exercise of the power shall be treated as never having occurred.

(4) The conditions set out in subsection (2) may be satisfied without it being alleged or proved that in the exercise of the power, the person who holds the power, or any adviser to such person, acted in breach of trust or in breach of duty.

(5) An application to the court under this section may be made...