The X Trusts

• Jurisdiction: Bermuda
• Judge: Gloster, J.A,Kay, J.A,Clarke, P
• Judgment Date: 23 February 2023
• Neutral Citation: BM 2023 CA 8
• Docket Number: Case No: Civ/2021/20
• Court: Court of Appeal (Bermuda)

In the Matter of the X Trusts

Neutral Citation Number: [2023] CA (Bda) 4 Civ

Before:

THE PRESIDENT, Sir Christopher Clarke

JUSTICE OF APPEAL Sir Maurice Kay

and

JUSTICE OF APPEAL Dame Elizabeth Gloster, DBE

Case No: Civ/2021/20

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE SUPREME COURT OF BERMUDA SITTING IN ITS

ORIGINAL CIVIL JURISDICTION

THE HON. ASSISTANT JUSTICE KAWALEY

CASE NUMBER 2018: No. 40

Dame Lois Browne-Evans Building

Hamilton, Bermuda HM 12

Mr Simon Taube KC of counsel and Mr Thomas Fletcher of counsel and Ms Lilla Zuill, Zuill & Co., for D1, D5, D8, D9-D12 (“the B Branch”)

Mr Brian Green KC of counsel and Ms Anna Littler of counsel and Mr Matthew Watson, Cox Hallett Wilkinson Limited, for D3 (“the A Branch”)

Mrs Elspeth Talbot Rice KC of counsel and Ms Judith Roche, Conyers Dill & Pearman Limited, for the Trustees

Mr Keith Robinson and Mr MacKay, Carey Olsen Bermuda Ltd., for the Protectors

Hearing date(s): 14–16 June 2022

REVISED APPROVED JUDGMENT

Gloster, J.A

Introduction

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” 1. Of the X Trusts, 51 are governed by English law, 21 by the law of Bermuda, and one by the law of Jersey 2.

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 Protectors”. The “Specified Securities” include shares in a substantial quoted public company, with a large market capitalisation, which I shall refer to as “OpCo”. OpCo 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) a significant aggregate interest in OpCo. Recent evidence from the Trustees' expert corporate financier shows that this block of shares (not surprisingly) had, and has, greater value and influence over OpCo 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?’

Factual and procedural background

The parties

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” (together “the Respondents”). 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 Further respondents to the appeal are the current protectors of the 73 X Trusts (“the Protectors 3”). 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. I use the term “Respondents” to refer collectively to all the respondents to the appeal.

8 We are grateful to counsel for their detailed and extensive arguments.

The Protector Provisions

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 Bermudian 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”. The desire was expressed in particular in relation to the significant shareholding in OpCo 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 one of the original Jersey Protectors as to what 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:

• (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.

• (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.

• (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 OpCo.

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 Securities

Notwithstanding anything to the contrary contained herein or in the Settlement, the Trustees shall not, without in...