Re The Z Trusts

• Jurisdiction: Bermuda
• Judgment Date: 28 April 2023
• Court: Supreme Court (Bermuda)
• Docket Number: Civil Jurisdiction 2023 No 36

In the matter of an application under Order 85 of the Rules of the Supreme Court 1985

And in the matter of the Trusts (Special Provisions) Act 1989

And in the matter of the Trustee Act 1975

And in the matter of the trusts identified in Appendices A and B to the Originating Summons dated 30 January 2023

Between:

A, B and C

Plaintiffs

and

D and Others

Defendants

[2023] Bda LR 48

Civil Jurisdiction 2023 No 36

In The Supreme Court of Bermuda

Trusts — Validity of transactions — Whether the two-party rule renders transactions void in law or equity — Self-dealing rule — English Law of Property Act 1925 — Appropriate forum — Conflict of laws

The following cases were referred to in the judgment:

Crociani v Crociani [2014] UKPC 40

Rye v Rye [1962] AC 496

Macmillan Inc v Bishopsgate Investment Trust plc (No 3) [1996] 1 WLR 387

Akers v Samba Financial Group [2017] AC 424

Wong v Grand View PTC Ltd [2022] Bda LR 59

JSC VTB Bank v Skurikhin [2019] EWHC 1407

Re Hastings-Bass [1975] Ch 25

Mr N Le Poidevin KC and Ms J Roche for the Plaintiffs

Mr K Robinson for the 1^st and 2^nd Defendants

Ms L Zuill for the 3^rd, 5^th, 8^th – 13^th and 17^th Defendants

Mr B Green KC, Mr D Kessaram and Mr P Watson for the 4^th Defendant

Remaining defendants unrepresented

JUDGMENT of Mussenden J

Introduction

1. On 24 March 2023 I heard extensive submissions from the parties in respect of this matter. I was satisfied that I should grant the relief sought and I made an order to that effect with a written Judgment to be issued in due course. I herein set out the reasons for my Judgment.

2. There are numerous settlements referred to as the Z Trusts (the “Trusts”), including a number of active Bermuda Trusts and some trusts which are presently dormant and without assets but were still covered by the present application. The Trusts with a Bermuda trustee have been called the Bermuda Trusts and the remaining Trusts have been called the Jersey Trusts, irrespective of the proper law. It is the Bermuda Trusts which are the subject of this Judgment.

3. The Plaintiffs are trustees of a number of Bermuda Trusts. All but one of the Trusts have a single trustee as follows:

• (a) Most of the Trusts have as trustee either P1 or P2, both Bermuda corporations;

• (b) One has P3, a Jersey corporation, as trustee in conjunction with P2; and

• (c) Six of the Trusts have as trustee either P3 or another Jersey corporation.

4. The Defendants, D1 and D2, are the protectors of the Trusts. All but one of the Trusts have protectors, either D1 or D2, both Jersey corporations. The protectors have the same directors as each other and in the past the boards also have overlapped with those of the trustees.

5. The Defendants, D3 to D18 are beneficiaries of the Trusts.

6. The Defendants, D19 to D46, are investment-holding companies which are wholly owned by certain of the Bermuda Trusts, one company per Trust. Not all the Trusts hold companies and there are 28 companies in all. The Companies seek no relief but they may have acquired assets directly or indirectly from a party to various transactions. They are included in this matter in order to be bound by the Judgment.

7. HM Revenue & Customs confirmed in advance of the hearing that they did not wish to participate in the proceedings.

Background

8. The Plaintiffs caused an Originating Summons to be issued 30 January 2023 seeking relief in relation to past transactions between the trustees of the Trusts and/or their underlying companies, including and in particular:

• (a) Declarations from the Court confirming that under the law applicable to the validity of those transactions the two-party rule does not render them void in law or equity;

• (b) An order confirming any of those transactions that may be voidable so that they are not liable to be set aside;

• (c) A declaration that no person has any claim to moneys or other property in the hands of another person as a result of those transactions; and

• (d) An order confirming that the Plaintiffs or other trustees of the Trusts be entitled to administer them on the footing that none of those transactions is void for want of compliance with section 53(1)(c) of the English Law of Property Act 1925 and on such other footing as to the Court seems fit.

9. The various parties in this matter support the application and there is no opposition to it. Although I make detailed references to the submissions of counsel for the trustees throughout, counsel for the other parties did make submissions noting their support for the trustees' positions as well as addressing various issues as they saw fit.

10. In a related matter, on 15 July 2022 the Court made an order (“the Bermuda 2022 Order”) by which it affirmed large numbers of transactions which involved the Trusts and were vulnerable to challenge under the rule against self-dealing, so that they could no longer be upset. But certain transactions also fell foul of the two-party rule (described below). They were excepted from the Bermuda 2022 Order because they raised different legal points. The current application before the Court deals with those transactions.

11. The Bermuda 2022 Order was made conditional on the grant by the Royal Court of Jersey of similar relief in respect of transactions to which any of the Jersey Trusts (or companies they owned or controlled) were party. That Court considered an application and on 16 December 2022 made such an order (the “Jersey 2022 Act of Court”).

Two-party rule transactions

12. Certain transactions were excluded from the relief granted by this Court and the Royal Court of Jersey. They comprised transactions between two Trusts where the two Trusts had the very same trustee, so that there was only one party to the transaction. Thus, it is those one-party transactions alone which are the subject of the application before this Court. The number of such transactions so far identified is some 145.

13. The two-party rule is that to be fully valid a contract or a transfer of an asset requires two parties. The rule is common to what the trustees contend are the only relevant systems of law, namely those of Bermuda, England and Jersey.

14. The trustees submitted that the importance of the two-party rule is that it has been suggested that a transaction in breach of the rule is void. If so, there could be serious consequences for the Trusts involved making it necessary to unravel transactions and any subsequent dealings with the shares or cash transferred, causing further prejudice to companies they owned and controlled and to the beneficiaries personally, and tax would have been paid on an incorrect assumption, in both cases over many years.

15. Thus, the trustees' principal submission in this application was that where there is only one party to a transfer but that party is acting in two different capacities, the transaction is not in law void but, because of the self-dealing rule, at most only voidable.

Jurisdiction

16. In respect of the Bermuda Trusts, the proper law of 21 of the Trusts is that of Bermuda, the proper law of one Trust is that of Jersey and the proper law of the remaining Trusts is English Law. All have Bermuda-based trustees.

17. Section 9(1) and (2) of the Trusts (Special Provisions) Act 1989 (the “1989 Act”) provides:

“9. (1) The Supreme Court has jurisdiction to hear and determine any claim concerning the validity, construction, effects or administration (including in respect of any of the matters referred to in section 7(a)–(j)) of —

• (a) a Bermuda trust; or

• (b) a foreign trust to which subsection (2) applies.

(2) A foreign trust referred to in subsection (1)(b), is a trust where—

• (a) the trust instrument contains a clause conferring jurisdiction on the courts of Bermuda;

• (b) all or part of the administration of the trust is carried on in Bermuda;

• (c) a trustee is incorporated or resident in Bermuda; or …”

18. I am satisfied that the Court has jurisdiction over all the Bermuda Trusts under the 1989 Act either under section 9(1)(a) or under section 9(2)(c). The Court has a discretion not to exercise jurisdiction if there is a more appropriate forum. However, I am satisfied that Bermuda is the appropriate forum for all the Bermuda Trusts, including those governed by English Law for the following reasons:

• (a) As P1 and P2 are based in Bermuda, this Court is the natural court to supervise them as trustees;

• (b) Avoiding a parallel application in England will save substantial costs; and

• (c) The Court has already accepted jurisdiction over the Bermuda Trusts when it made the Bermuda 2022 Order.

19. Certain of the Trusts contain...