Trustees 1 – 4 v Attorney General and Respondents 2–3

• Jurisdiction: Bermuda
• Judge: Zacca P,Auld JA,Baker JA
• Judgment Date: 15 August 2014
• Court: Court of Appeal (Bermuda)
• Docket Number: Civil Appeal 2014 No 3
• Date: 15 August 2014

[2014] Bda LR 86

In The Court of Appeal for Bermuda

Before:

Zacca P; Auld JA; Baker JA

Civil Appeal 2014 No 3

Between:

Trustees 1 – 4

Appellants

and

Attorney-General

Respondent 2

Respondent 3

Respondents

Mr A Boyle QC, Mr N Hargun and Mr S Pearman for the Appellants

Ms S Warnock-Smith QC, Mr R Attride-Stirling and Ms C Smith for the 2^nd Respondent

Ms L Zuill for the 3^rd Respondent

The following cases were referred to in the judgment:

O'Rourke v DarbyshireELR [1920] AC 581

Schreuder v Murray (No 2) [2009] WASCA 145

Wynne v HumbertsonENR (1858) 27 Beav 421

New Kateria Maritime Co Ltd v Atlantic and Great Lakes Steamship Corp [1981] Com LR 138

Dunlop Slazenger International Ltd v Joe Bloggs Sports LtdUNK [2003] EWCA Civ 901

MAC Hotels Ltd v Rider Levett Bucknall UK Ltd [201] EWCA Civ 767

Beddoe proceedings — Purpose trusts — Whether trusts properly constituted — Undue influence — Breach of fiduciary duty — Privilege — Role of enforcers — Waiver — Dissenting opinion — Statutory interpretation

JUDGMENT of Baker JA

Introduction

1. Having heard submissions over two days on 5 and 6 June 2014, on 12 June 2014 we unanimously allowed the appeal, announced our conclusions as repeated at the end of these reasons and granted the declaration therein referred to. We said that our detailed reasons would be given as soon as possible. These are my detailed reasons.

2. The point under appeal is in reality a short one and arises from Hellman J's ruling on 26 February 2014 that it was ‘inappropriate’ for the Appellants to assert that a document (‘the Document’) was legally privileged. The appeal is brought with the leave of the judge.

3. The proceedings in which the ruling was given were brought in accordance with the procedure in Re BeddoeELR[1893] 1 Ch 547 (‘Beddoe Proceedings’). These in short are separate proceedings in which trustees are permitted to seek advice and direction from the court as to the position they should take in an action concerning the trust, including whether they should defend an action brought against a trust at the expense of the trust fund. Beddoe Proceedings are heard by a judge who will not be in charge of the main action and are heard in camera.

Background

4. The Appellants are the trustees of four Bermuda purpose trusts established between 2001 and 2005 under the Trusts (Special Provisions) Act 1989 (‘the 1989 Act’). Their aggregate value is said to exceed US$10 billion and derives from wealth created by F and G (‘the Brothers’) who founded an international business (the ‘Group’). More specifically the trusts are as follows:

• i. Trust 1. The trustee is Trustee 1 and the trust was established on 10 May 2001. It holds shares in offshore companies that in turn hold shares in the Group.

• ii. Trust 2. The trustee is Trustee 2 and the trust was established on 24 June 2002. It holds shares in offshore companies.

• iii. Trust 3. The trustee is Trustee 3 and the trust was established on 9 May 2005. It holds shares in an offshore company which in turn holds shares in Group companies.

• iv. Trust 4. This trust too was established on 9 May 2005 and holds shares in an offshore company which in turn holds shares in Group companies.

5. Underlying the Beddoe Proceedings is an action (‘the underlying action’) brought by the Second Respondent (‘R2’). R2 is the only Respondent who has participated actively in the current appellate proceedings. The other Respondents are The Attorney-General who is the First Respondent and G, the Third Respondent. G is in poor health and is unable to manage his affairs. He is said to have no interest in the assets of the trusts. His son has power of attorney and a guardian ad litem has been appointed. G was joined in the proceedings in order to be bound by the Beddoe judgment.

6. R2 is one of twelve heirs of F and is his eldest son by his second marriage (or relationship – there is some dispute as to whether there was a marriage). R2 worked for the Group for many years; there is conflicting evidence as to the circumstances surrounding the end of his employment.

7. It is necessary to look at the nature of the underlying action brought by R2 in order to understand the flavour of this bitter dispute. F died in 2008. He was domiciled in a country in Asia and did not, apparently, leave a will. In this action the trustees of the four trusts are the first four defendants and D5 is joined as the fifth defendant. D5's involvement arises in this way. Prior to establishment of the trusts, what became the trust assets were held by D5, a long standing associate and trusted adviser to the Brothers. The assets were in offshore companies prior to the shares in those companies being assigned to the trusts. D5 was, if not formally the settlor of the four trusts, at the very least the agent of F and undertook the necessary arrangements on his behalf. I shall return to this later.

8. The relief sought in the underlying action is as follows:

• • Declarations that all four trusts are void for uncertainty of object.

• • Declarations that the trustees hold the entirety of the trust funds on trusts for the heirs of F i.e. on resulting trusts.

• • Various consequential orders including removal of the trustees.

• • Compensation against D5 for breach of trust or breach of fiduciary duty.

9. There are two main threads to R2's case. First, that the purposes of the trusts are not sufficiently certain for the trusts to qualify as purpose trusts and second that the trusts were improperly constituted because F never gave his full and informed consent to their creation or alternatively there was undue influence or breach of fiduciary duty. R2's case is that he did not know of the existence of the trusts until a meeting with D5 in 2009 and that it was as a result of what R2 learned at that meeting that it was necessary for him to commence the underlying action.

10. When F died intestate in 2008 he left considerable assets outside the purpose trusts. So this is not a case where his heirs have received little or nothing. An explicit part of the vision of the Brothers was that the family would control and manage the assets that eventually went into the trusts rather than own them. The Brothers had built up vast wealth through the Group since the 1950s and the Group has made a significant positive impact on the economic welfare of the country in which the Group is primarily active.

11. The court's attention was drawn to passages of Trust 1 as broadly representative of all four trusts.

12. In the definitions section of the trust document the settlor is defined as ‘any person who at any time contributes property to the trust fund.’ An enforcer is defined as ‘a committee consisting of such individuals as shall be appointed by or pursuant to Clause 11 for the purposes of section 12B(1) of the 1989 Act.’

13. We were also shown the Bye-laws of the same trust, again on the basis that they are representative of all the trusts.

14. By Bye-law 13 there are restrictions on a person serving as a director including (3) which provides:

‘such individuals shall agree, in writing, with the […] Family spirit, vision and principles set forth in paragraph (1) of Bye-law one of these Bye-laws and Recital (C) of Trust 1 and be willing to fully implement such spirit, vision and principles.’

In other words a person cannot be appointed a director unless he signs up in writing to the spirit, principles and vision of the trust.

15. It is the trustees' case that they fulfil the vision statement and intend to continue to do so. One puzzling feature of the case is that in the spring of 2009 R2 put himself forward as a director of the trusts and indeed signed a nomination form to that effect. He said he did so in order to get inside the trusts and learn about them as they had been kept secret from him, and to uncover the true story of their creation, funding and formation. Had he been appointed a director, which in the event did not happen, he would have had to sign up to the vision statement and committed himself to personal ownership of the assets.

16. T is the half-sister of R2. Her evidence is that from 2000, with the knowledge and guidance of the Brothers, she played an active role in restructuring the offshore holdings so that the founders' vision and life's work would continue after their deaths. She says the shares in these holding companies were entrusted principally to D5 who was to apply the assets for the public purposes identified by the founders.

17. Having read in particular the voluminous affidavits of T, on behalf of the Appellants, and R2, it is apparent that there are very significant underlying factual disputes between the two sides going to the fundamental issue in the underlying action whether the trusts were properly constituted or whether the funds are held on a resulting trust for the heirs of F. These factual issues will fall to be resolved in that action. I express no view as to the likely outcome which is irrelevant for the purposes of this appeal. I should add that the issue of whether the purpose of the trusts are sufficiently certain is a pure question of law.

The Appeal

18. The judge dealt with a number of issues in the Beddoe Proceedings only one of which, relating to the Document, is the subject of appeal. The issue about the Document arises in this way. In early 2008 T prepared a memorandum setting out a proposal for modification of the trusts' structure. The idea was to widen membership of the boards of the trusts and provide for representation of future generations of the family on those boards. Initially, G did not agree the time was right to do so but in April 2008 F sought advice on proposed changes to the Bye-laws of the trusts. The plan was to produce a new document, being the Document, which would explain the possible new structure. T worked on it with the lawyers but it was not finalised when F died. The judge...