Re The P Trusts

• Jurisdiction: Bermuda
• Judgment Date: 20 April 2023
• Court: Supreme Court (Bermuda)
• Docket Number: Civil Jurisdiction 2018 No 389

In the matter of the P Trusts

And in the matter of section 47 of the Trustee Act 1975

And in the matter of order 85 of the Rules of the Supreme Court 1985

[2023] Bda LR 39

Civil Jurisdiction 2018 No 389

In The Supreme Court of Bermuda

Public Trustee v Cooper category 2 application seeking approval of momentous decision — Implementation of Settlement Agreement — Whether decision was rational — Value of shares — Loss of opportunity

The following cases were referred to in the judgment:

Public Trustee v Cooper [2001] WTLR 901

Cotton v Earl of Cardigan [2014] EWCA Civ 1312

Re the A Trusts [2018] Bda LR 53

Re the XYZ Trusts [2022] Bda LR 10

Re the R Trust [2019] Bda LR 39

Snelling v John G Snelling Ltd [1973] 1 QB 87

Hirachand Punamchand v Temple [1911] 2 KB 330

Southwest Trains v Wightman [1998] PLR 113

Re Gulbenkian (No 2) [1970] 1 Ch 409

Mr B Green KC, Mr J Elkinson and Ms B Smith for the Plaintiffs

Mr M Furness KC and Mr R Orchard for the 1^st, 4^th and 8^th Defendants

Mr F Tregear KC and Mr K Robinson for some of the 2^nd Defendant, 3^rd, 5^th and some of the 6^th Defendants

Mr A Mold KC and Ms L Williamson for the other 2^nd Defendant, some of the 6^th Defendants and the 9^th Defendant

Mr N Le Poidevin KC and Mr W Bank for the 7^th Defendant

Ms F Rana-Fahy for the 8^th Defendant

JUDGMENT of Hargun CJ

Introduction

1. By Originating Summons dated 22 November 2018, the Plaintiffs seek an order approving the actions of the First Plaintiff, Company A, in its capacity as the trustee of the three Settlements (the “Trustee”) and the Second Plaintiff in his capacity as the protector of those Settlements (the “Protector”) established by:

• i. The deed dated 27 December 2006 and made between PRP as settlor and the Trustee and known as the P Family Settlement (2006) (“the Family Settlement”);

• ii. The deed dated 27 December 2006 between PRP as settlor and the Trustee and known as the JP Family Settlement (“JP Settlement”);

• iii. The deed dated 27 December 2006 between PRP as settlor and the Trustee and known as the JE Family Settlement (“JE Settlement”) (collectively referred to as the “the Settlements” or the “Three Settlements”), which actions were to give effect to the agreement entered into between the primary beneficiaries of the Settlements (PDP, JP and JE) on 13 July 2018 (“the Settlement Agreement”) such that the collective assets of the Settlements may be redistributed to the Settlements in accordance with the Settlement Agreement and the wishes of the respective adult beneficiaries.

2. The application made by the Trustee is in the nature of a Public Trustee v Cooper category (2) application. The Trustee contends that its decision to accept and implement the terms of the Settlement Agreement is a momentous decision and, in the circumstances, it is appropriate that the Trustees should seek the sanction of the Court.

3. In his first affidavit sworn on 7 August 2019 Mr Peter Pearman, who is a director of the Trustee along with Mr Christopher Lloyd, explains the background to the present application.

4. The settlor (“PRP” or the “Settlor”) was a successful businessman and created and built up a UK company. Its business was providing management and janitorial services, including cleaning of office buildings. It was a successful company and PRP's son, PDP also worked in the company. The company was taken over in a hostile bid. After the takeover of the UK company, PDP with the help and support of PRP set up a company, II, in the United States.

5. With a view to trying to pass on the wealth generated in an efficient manner, PRP established the Settlements. PRP had three children: PDP, JP and JE. Mr Pearman believes that the three trusts were established so as to provide for PRP's three children and their issue. Under the Family Settlement, each of PDP, JP, JE, together with their spouses and any children are named as beneficiaries. Under the JP Settlement, JP and his spouse and any children are named as beneficiaries. Under the JE Settlement, JE and her spouse and any children are named as beneficiaries.

6. PRP died on 6 March 2014 and disputes arose between the three siblings, in particular as regards the division of assets, the value of the II shares held by a company called KIL and if, when and at what price the land in England should be sold.

7. Mr Pearman states that the settlement of any disputes amongst the family was made more complicated as a result of the family being aware of the meeting that PRP had with Mr Pearman and Mr Lloyd, the Protector, on or about October 2013. PRP had come to appreciate how much PDP had achieved at II and he was also very conscious of the complicated inter-company loans amongst the various corporate entities in the structure of the Settlements. He wished to try and tidy these matters up but unfortunately passed away before the directors of the Trustee were made aware of how he wished to proceed and the ability to complete such transactions became significantly more complicated after his death.

8. When the Settlements were established KIL was the owner of approximately 17.6% of II (“the KIL II Shares”) (representing family funds used to initially provide financial support for II), and KIL was owned 3/7th by the JP Settlement and 4/7th by the JE Settlement. Mr Pearman believes that (a) JP owned, in his own right, approximately 11% of the issued share capital of II; and (b) PDP owned or controlled a vast majority of the remaining issued share capital in II.

9. It appears that PDP was keen to obtain the II shares held by KIL but obtaining the valuation of the shares proved difficult given that there was no open market for the shares and KIL held a minority position (albeit a significant minority). An attempt was made to agree a valuation using the services of KPMG but this led to more disputes with disagreements arising as to whether the valuation should be twice what PDP thought it was. The parties attempted a family mediation to try and find a mechanism and price where the combined assets of the Settlements could be fairly divided. At one stage there was a suggestion of dividing the assets 30/30/40, with JE obtaining the 40%. However, this did not succeed and finally the younger generation, namely the children of the three primary beneficiaries, commenced discussions and in due course the primary beneficiaries and the younger generation sought the assistance of Mr SLR, an accomplished solicitor. Mr SLR had been a long-term friend of PRP as well as a director of M Services Ltd, the UK family company, for many years. He was asked to see if he could implement a global settlement that appeared to have been promulgated by members of the JE family.

The Settlement Agreement

10. Mr SLR did eventually achieve the signing of the family Settlement Agreement dated 13 July 2018 which was duly executed by the family members. The signatories to the Settlement Agreement are all the adult members of the families (the “Signatories”). The Signatories are (i) PDP, deceased, his daughter and his son; (ii) JP, and his two sons; (iii) JE, her two sons, and her daughter.

11. The preamble to the Settlement Agreement records that the Signatories intend that the terms of the Settlement Agreement will form the basis on which the Trustee will be invited to exercise its powers to procure the distribution of the assets of the Settlements. It further records that it is proposed that the transactions described in the Settlement Agreement will be implemented in accordance with a detailed timetable to be agreed with the Trustee and approved by an order made by the Supreme Court of Bermuda.

12. Under the Settlement Agreement, the Family Settlement becomes a settlement for PDP's family branch (the “PDP Settlement”), and the JE Settlement and the JP Settlement continue to be held for JE's and JP's family branches. Subject to excluded transactions, the practical effect of which is to cause certain assets to be held exclusively for the JE Settlement and the JP Settlement, the balance of the net assets of the Settlements are under the Settlement Agreement to be divided equally three ways.

13. One of the excluded transactions, the proceeds of which are under the Settlement Agreement excluded from the three-way split, concerned the KIL II Shares. Under the Settlement Agreement, the KIL II Shares were to be bought back and cancelled by II at an effective price of US$54.34 per II share, and the proceeds of that buy-back were to belong equally to the JE Settlement and the JP Settlement to the exclusion of the PDP Settlement. PDP's family were excluded from the proceeds of the buy-back because the consideration paid by II was set on the basis that the 1/3rd of the KIL II Shares that might otherwise have been allocated to PDP's family's branch by way of three-way split under the Settlement Agreement was acquired for nil consideration. PDP's family branch obtained their side of the bargain on the other side of the transaction as majority shareholders in II, since II benefitted from the fact that in effect nothing was paid by it in the II buy-back and cancellation for PDP's family branch's otherwise notional 1/3rd of the KIL II Shares.

14. Although the Settlement Agreement provided for its implementation generally to be pursuant to an order of this Court, it was specifically agreed that the KIL II Share buy-back and cancellation would be completed in advance of any such application (clauses 3.6 and 21). In clause 21 of the Settlement Agreement, dealing with “Order of transactions”, the Signatories acknowledged that the order of and timing of the appointment and transactions which they have agreed to request the Trustee to implement, will be a matter for agreement with the Trustee, in light of the need for Court approval, save and except that the II transaction as detailed in clauses 3 and 19 must be completed on or before 16 July 2018.

15. By clause 20 of the Settlement Agreement...