Analysis
On 23 October 2020 the Bermuda Supreme Court granted a Public Trustee v Cooper Category 2 application for a ‘blessing’ of the applicant trustees’ decision to develop preliminary proposals for the future administration of an apparently very valuable group of private trusts, referred to as ‘the X Trusts’. The preliminary proposals contemplated restructuring the X Trusts by way of an unequal division of the trust assets between two branches of the beneficiary family. One branch of the family supported these proposals, the other did not.
Implementation of the trustees’ proposals, when finalised, would require the consent of the two protectors of each of the trusts, who were among the defendants to the trustees’ blessing application. At the October 2020 hearing the court had directed that an issue raised by the protectors as to the scope of their powers be determined by way of giving further directions to the trustees.
Only very limited factual background emerges from the anonymised judgment, but it appears that the X Trusts had been created by their trustees, perhaps by way of the exercise of powers of appointment, as a second generation of trusts (also referred to in the judgment as the Phase 2 Trusts or the Modern Trusts). The first-generation trusts (also referred to as the Phase 1 Trusts) were apparently governed by the laws of a number of jurisdictions and had a number of different trustees. The main assets of both generations of trusts were shares in an operating company, referred to as ‘OpCo’.
In 1994 and 1995 the then trustees of the second-generation trusts had apparently exercised powers to introduce provisions into the trust instruments relating to protectors holding powers of consent. These were the equivalent of powers already held by the protectors of the first-generation trusts. A purpose of the introduction of protector powers to all trusts was to provide stability, continuity and coherence in their administration generally and, in particular, in relation to OpCo. This involved the appointment of the two companies acting as protectors of the first generation trusts as co-protectors of each second-generation trust. This arrangement apparently continued thereafter. The protectors were not UK resident.
The powers of the trustees which required the consent of the protectors included powers to advance capital or to deal with ‘Specified Securities’, ie the OpCo shares. The exact form of these powers differed from trust to trust but the variations were not considered to be material.
It was common ground that the protectors’ powers were ‘fiduciary’, so that they could not be exercised for the benefit of the holder, but there were no express provisions as to the content of the duty or otherwise directly bearing on the issue raised.
The issue of construction put before the court was whether the exercise of the protectors’ powers of consent:
- a) required the protectors to exercise their own discretion when deciding whether to give or withhold consent (in the same manner as a trustee), described as the ‘Wider View’; or
- b) required and permitted the protectors only to consider whether a proposed course of action was within the trustees’ powers and was one which a reasonable trustee could reach (as a court would do when deciding whether to approve a momentous decision), described as the ‘Narrower View’.
Held:
The scope of the protectors’ consent powers was as indicated by the Narrower View. The court would follow an iterative approach to construction, as commended by Lord Hodge in Barnardo’s v Buckinghamshire [2018] and the contextual analysis commended by the Bermuda Court of Appeal in Grand View Private Trust Company v Wong [2020] at paras 178-179:
- a) Construed literally, the terms of the protectors’ powers themselves supported the Wider View but the court noted the absence of ‘special words’, such as a clause stating that the protector’s discretions were to be absolute and uncontrolled.
- b) The purpose of the introduction of the protectors’ powers, so far as could be deduced from admissible extrinsic evidence, did not assist the court to determine the issue raised.
- c) In view of the context provided by other provisions regarding the protectors in each trust instrument, it was clear that the role of the protectors was intended to be ancillary to the role of the trustees rather than equal to it or a joint role.
- d) The balance of the views of textbook writers suggested this was the usual role of protectors and this supported the Narrower View, as did dicta in the decision of the Bermuda Court of Appeal in Re Information About a Trust [2014].
- e) The result of adopting the Narrower View was not to deprive the protectors’ powers of consent of meaningful content, although it could not be said that adopting the Wider View would have produced an unacceptable result in terms of the administration of the trusts.
- f) The English decision PTNZ v AS [2020], adopting the Wider View, was distinguishable on the basis of the different terms of the trust instruments in that case. It was also unpersuasive, in that it was a decision taken without fully adversarial argument or a full review of the views of commentators and the authorities now before the court.
Obiter: If the court had held that the Wider View prevailed, it would have summarily rejected the argument that the introduction of the protector powers would have been an excessive and hence invalid exercise of the powers used by the trustees to produce that result, as not being for the benefit of the objects of those powers.
JUDGMENT ASSISTANT JUSTICE IAN RC KAWALEY: Introduction [1] In my judgment herein dated October 23, 2020, I held as follows: ‘54. The Trustees should be granted an Order substantially in the terms of their Summons dated June 22, 2020, namely an Order that (subject to their undertaking not to incur significant expense until the scope …Continue reading "Re X Trusts [2022] WTLR 355"