Re The X Trusts
| Jurisdiction | Bermuda |
| Judge | Clarke P,Kay JA,Gloster JA |
| Judgment Date | 17 February 2023 |
| Docket Number | Civil Appeal 2021 No 20 |
| Court | Court of Appeal (Bermuda) |
[2023] Bda LR 11
Clarke P; Kay JA; Gloster JA
Civil Appeal 2021 No 20
In The Court of Appeal for Bermuda
Role of protector — Consent — Exercise by trustees of power of appointment — Exercise by trustees of administrative power of managing or disposing of assets — Construction of protector provisions of trust deed — Narrow review role vs wide review role
The following cases were referred to in the judgment:
AIB Group v Martin [2001] UKHL 63
Marley v Rawlings [2015] AC 129
Rabin v Gerson Berger Association Ltd [1986] 1 WLR 526
Davidson v Seelig [2016] WTLR 627
Rawcliffe v Steele [1993–95] MLR 426
Re the A and B Trusts [2012] JRC 169A
Re an Application for Information about a Trust [2014] Bda LR 5
PTNZ v AS and ors [2020] WTLR 1423
Re the B Trust [2020] JRC 011
Re Piedmont and Riviera Trusts [2021] JRC 249
Mr S Taube KC, Mr T Fletcher and Ms L Zuill for the B Branch
Mr B Green KC, Ms A Littler and Mr M Watson for the A Branch
Mrs E Talbot Rice KC and Ms J Roche for the Trustees
Mr K Robinson and Mr O MacKay for the Protectors
JUDGMENT of Gloster JA
1. This is an appeal from the judgment of the Supreme Court of Bermuda handed down by Kawaley AJ (“the judge”) and dated 7 September 2021 (“the judgment”). The appeal concerns the construction of certain protector provisions (“the Protector Provisions”) contained in 73 settlements which I will refer to as “the X Trusts”. Of the X Trusts, 51 are governed by English law, 21 by the law of Bermuda, and one by the law of Jersey.
2. The primary beneficiaries are descendants of Mr X, a businessman, an original settlor of certain of the X Trusts. I shall refer to all the beneficiaries where appropriate as the X Family. Two of Mr X's sisters were also settlors of certain trusts. All the relevant Protector Provisions are in substantially identical form. Each provides that the trustees' powers to appoint capital, and to vote and to deal with “Specified Securities,” as defined in the settlements, may not be exercised “without the prior written consent of the Protector”. The “Specified Securities” include shares in a substantial quoted public company, with a large market capitalisation, which I shall refer to as “X Plc”. X plc was established by Mr X. At all material times the Trustees of the X Trusts held, and still hold, in aggregate (i.e. across the various X Trusts) approximately 44.7% of the issued voting shares of X plc. Recent evidence from the Trustees' expert corporate financier shows that this block of shares (not surprisingly) had, and has, greater value and influence over X plc if the Trustees of the various X Trusts vote and act in a unified manner.
3. The principal question raised in this appeal is:
‘what role does a fiduciary protector have when it is asked for its consent to the exercise by trustees of a substantive power of appointment and/or the exercise of an administrative power of dealing with, or disposing of, particular assets, where such powers have been specifically entrusted to the trustees specified in the trust deed?’
4. The appellants are certain members of the family of the daughter and younger child of Mr X (and the niece of Mr X's sisters) (“the Appellants”). In the judgment, the judge referred to the Appellants (for anonymisation purposes) as the “B Branch” or the “B Family”. I shall do the same. Before this Court, they were represented by Mr Simon Taube KC, Mr Thomas Fletcher and Miss Lilla Zuill.
5. The principal respondents are certain members of the family of the son and elder child of Mr X (and the nephew of Mr X's sisters). In the judgment, the judge referred to these respondents (for anonymisation purposes) as the “A Branch” or the “A Family”. I shall do the same. Where appropriate, I shall refer to them as “the A Family Respondents.” Before this court they were represented by Mr Brian Green QC, Ms Anna Littler and Mr Matthew Watson.
6. The other respondents to the appeal include the current trustees (“the Trustees”) of the 73 X Trusts which are the subject of the appeal before us. They are Bermuda resident corporate trustees. (There are a further 6 X Family trusts which have Jersey resident trustees, and which are not before the Court in these proceedings or, if they are technically respondents, they are not participating in the appeal. The Trustees also appeared below and made submissions to this Court on the appeal. They have stated that they are neutral on this appeal and that their role was limited to assisting the Court. The Trustees were represented before this Court by Mrs Elspeth Talbot Rice KC and Ms Judith Roche.
7. The other respondents to the appeal are the current protectors of the 73 X Trusts (“the Protectors”). They are companies incorporated and resident in Jersey. The Protectors stated that they have remained neutral at all times. However, they were represented before this Court by Mr Keith Robinson and Mr Mackay and presented submissions effectively in support of the Appellants' position.
8. We are grateful to counsel for their detailed and extensive arguments.
9. Some of the settlements had included Protector Provisions since their inception; however, in the case of other settlements, Protector Provisions were only added by way of amendment, following their inception. It was the Trustees (not a settlor) who introduced the Protector Provisions in 55 of the 73 cases, with the 18 subsequent trusts thereafter adopting a similar approach.
10. In 1989 and 1990, the English resident trustees of many of the X Trusts were replaced with Bermudan resident corporate trustees. The new trustees were both relatively unknown to, and physically distant from, the English-resident beneficiaries. It was in this context that in or about early 1991 the X Family and its advisors considered the introduction of Protector Provisions. According to the evidence (the relevance and admissibility of which is disputed by the A Family), certain family member settlors and beneficiaries of the X Trusts wanted the family's trusted advisors to have some control over the offshore Trustees.
11. The contemporaneous correspondence, memoranda and notes documenting the settlors', trustees', and advisors' (both legal and lay) discussions in relation to the inclusion of Protector Provisions placed an emphasis on the desire to provide “stability, continuity and coherence in the long-term administration of the X Trusts”: see para 2.4 of the “Operation Protector Bible”. This desire was expressed in particular in relation to the de facto controlling shareholding in X Plc's voting shares, as well as the significant shareholding in the non-voting shares and other diversified instruments. In addition to these contemporaneous documents, three of the Appellants also produced affidavits of their alleged personal understanding – having “refreshed their memories” by reference to documents drawn to their attention – that the Protectorate as introduced in 1994/95 and in the (relatively less significant in terms of value) settlements that were made in 1997, had the Wide Discretionary Role. Further the Protectors adduced evidence from a Mr Geoffrey Grime, one of the original Jersey Protectors, as to what he (as an original Protector director) said that he thought the “flexi-role of the Protectors” involved.
12. I set out in Appendix A a summary of various extracts from the contemporaneous documents which were in evidence before us and upon which Mr Taube sought to rely as aids to construction of the Protector Provisions. The summary is taken, with certain adaptions, from the Appellants' skeleton argument on the appeal. (Appendix A does not include a summary of the affidavit evidence referred to above). I refer to such documents as the “Contemporaneous Materials.”
13. The result of these discussions was a plan referred to as “Operation Protector”, which was implemented in three stages:
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i. In phase 1, the trustees of 49 X Trusts exercised powers of amendment in each of the relevant settlements to introduce the present Protector Provisions.
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ii. In phase 2, the trustees of a further 6 X Trusts removed then-existing Protector Provisions in order to replace them with new Protector Provisions in substantially the same form as those introduced into the phase 1 trusts.
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iii. In phase 3, the settlement instruments of subsequent X Trusts were drafted to include Protector Provisions in much the same form as those implemented in phases 2 and 3.
14. Both the Appellants and the A Family Respondents agreed that, for the purposes of this appeal, the Protector Provisions in the relevant settlements are substantially identical. In 55 of the 73 X Trusts subject to these proceedings, the Protector Provisions are to be found in self-contained schedules inserted into the X Trust by appointments made by their Trustees in 1994 or /95 (“the Protector Schedule”).
15. Each provides that the Trustee's powers to appoint capital, and to vote and to deal with “Specified Securities”, may not be exercised “without the prior written consent of the Protector”. The “Specified Securities” include shares in X Plc.
16. Because the Protector Provisions, the construction of which is in dispute, are in substantially identical terms, the parties used the following sample provision as the template in relation to which this Court's determination is sought:
“2. Restriction on power to appoint capital
The Trustees shall not exercise their power to appoint, distribute or pay any part of the Trust Fund to or for the benefit of any member of the Appointed Class or any Beneficiary without obtaining the prior written consent of the Protectorate, nor, if the Trustees' consent is required for any appointment of capital, shall they give their consent without the prior written consent of the Protectorate.
3. Restriction in relation to Specified...
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