Re a Trust (Change of Governing Law)

• Jurisdiction: Bermuda
• Judgment Date: 19 May 2017
• Neutral Citation: [2017] SC Bda 38 Civ
• Date: 19 May 2017
• Docket Number: CIVIL JURISDICTION 2017: 136
• Court: Supreme Court (Bermuda)

[2017] SC (Bda) 38 Civ

In The Supreme Court of Bermuda

CIVIL JURISDICTION 2017: 136

In the Matter of a Trust (Change of Governing Law)

Mr Brian Green QC of counsel and Mr Jeffrey Elkinson, Conyers Dill and Pearman Limited, for the Trustee (the Plaintiff)

Mr Francis Barlow QC of counsel and Mr David Kessaram, Cox Hallett Wilkinson Limited, for the Unborn and Unascertained Beneficiaries (the 1 ^st Defendant)

Mr Craig Rothwell, Cox Hallett & Wilkinson, for the 2 ^nd Defendant

The Attorney-General, the 3 ^rd Defendant, did not appear

Trust—differential provision for legitimate and illegitimate children—proposed change of governing law from Caymanian to Bermudian law—abolition of legal distinctions between legitimate and illegitimate children by sections 18A to D of the Children Act 1998—application for declaration that change of governing law would not trigger the application to the Trust of the provisions of sections 18A to D of the Children Act 1998

REASONS

(in Camera)

Introductory

1 By an Originating Summons issued on April 24, 2017, the Trustee sought, inter alia, the following relief:

“ 1. A Declaration as to whether an exercise by the Plaintiff of the power in paragraph 6 of the Schedule of the [Trust] to change the governing law of the [Trust] from the law of the Cayman Islands to the law of the Islands of Bermuda:

• (a) would not or

• (b) would

cause sections 18A to D of the Children Act 1998 (Bermuda) as inserted by the Children Amendment Act 2002 (Bermuda)—

• (i) thenceforth to apply to the [Trust] and

• (ii) in the future upon the exercise of any power under the [Trust] to apply to any property of the [Trust] subject to such exercise.”

2 On May 15, 2017, I granted a declaration in the negative sense pursuant to paragraph 1(a) of the prayer in the Originating Summons. I now give reasons for that decision.

Factual matrix

3 The Trust was created under Caymanian law in 2007 after the Children Amendment Act 2002 introduced a new Part IIA containing sections 18A–18D into the Children Act 1998 (“the 1998 Act”) with effect from January 19, 2004. However it was supplemental to an earlier trust which was settled in 1983. Apart from charitable objects, the beneficiaries included the principal beneficiary and his legitimate issue.

4 The Trustee wished to modernise various provisions of the Trust and to change the governing law to Bermuda so as to be able to upgrade the Trust structure under the flexible jurisdiction conferred by section 47 of the Trustee Act 1975. If the effect of changing the domicile of the Trust from the Cayman Islands to Bermuda was to automatically trigger the application to the settlement of the relevant provisions of the 1998 Act, the change of domicile could not properly be exercised as such a course would be materially adverse to the interests of the unborn (legitimate issue) beneficiary class.

5 The Trustee's counsel argued, without any opposition from the 1 ^st Defendant's counsel, that the change of governing law power could be exercised without triggering the operation to the Trust and any instruments executed under it of the relevant statutory provisions in the 1998 Act.

The 1998 Act

6 Sections 18A–G of the 1998 Act contain provisions which were enacted by the Children Amendment Act 2002 with effect from January 19, 2004. Section 18A of the 1998 Act provides as follows:

“ Abolition of distinction between legitimate and illegitimate children

18A (1) Subject to subsection (2), for all purposes of the law of Bermuda a person is the child of his natural parents and his status as their child is independent of whether he is born inside or outside marriage.

(2) Where an adoption order has been made under the Adoption of Children Act 2006 or any previous enactment relating to the adoption of children or the law of any other jurisdiction, the child is in law the child of the adopting parents as if they were the natural parents.

(3) Kindred relationships shall be determined according to the relationships described in subsection ( 1) or (2).

(4) Any distinction between the status of a child born inside marriage and a child born outside marriage is abolished and the relationship of parent and child and kindred relationship flowing from that relationship shall be determined in accordance with this section.

(5) This section applies in respect of every person whether born before or after this Act comes into force and whether born in Bermuda or not and whether or not his father or mother has ever been domiciled in Bermuda.” [Emphasis added]

7 The first section abolishes the legal distinction between children born in and out of wedlock and explicitly applies to (a) persons born before or after the Act (i.e. January 19, 2004) and (b) persons born outside of Bermuda neither of whose parents are domiciled in Bermuda.

8 Section 18B is the section which substantively gives effect to section 18A so far as the present application is concerned. It provides:

“ Rule of construction

18B (1) For the purpose of construing an instrument or statutory provision, a reference to a person or group or class of persons described in terms of relationship to another person by blood or marriage shall be construed to refer to and include a person who comes within the description by reason of the relationship of parent and child as determined under section 18A.

(2) The use of the words “legitimate” or “lawful” shall not prevent the relationship being determined in accordance with section 18A.” [Emphasis added]

9 Section 18B on a straightforward reading requires instruments such as trust deeds to be construed in a manner which, despite purporting to apply only to legitimate children, reflects the abolition of the distinction between children born in and out of wedlock which is effected by section 18A.

10 The most significant provision for present purposes, that is determining what effect changing the governing law of a Caymanian trust settled in 2007 to Bermuda would have in terms of triggering the application of Part IIA of the 1998 Act, was the following transitional provisions of section 18C:

“ Application

18C This Part applies to—

• (a) any statutory provision made before, on or after the day this Part comes into operation; and

• (b) any instrument made on or after the day this Part comes into operation, but does not affect—

• (c) any instrument made before this Part comes into operation;

• (d) and a disposition of property made before this Part comes into operation.”

11 At first blush section 18C would automatically apply to the Trust if it became governed by Bermuda law as it was an “ instrument made on or after the day this Part comes into operation”. This much was expressly conceded in the Opinion of Mr Francis Barlow QC for the unborn beneficiaries within the class expressly defined by the Trust. However, compelling submissions were advanced by Mr Green QC for the Trustee as to why, as a matter of proper legal analysis, this ought not to be the case. And Mr Barlow QC, tasked with opposing these arguments if he could, was unable to do so.

Legal findings

Territorial application of Part IIA of the 1998 Act

12 I agreed that it was obvious that Part IIA of the Children...