Analysis
This was an application by P (a current trustee) to be appointed as sole trustee of the trust under s31(1) Trustee Act 1975 (Bermuda), and for liberty to manage the assets of the trust on the basis that it had been validly appointed as trustee by a deed dated 1 July 2015.
The trust was established by a deed dated 22 June 1965 between the settlor and the original trustee. It was a discretionary trust, with the beneficiaries including the settlor and his brothers then living or born at any time thereafter, subject to certain limitations in favour of the male line of descendants. It contained a power of appointing new trustees which was vested in protectors, who were named as a UK company and a New York company (acting jointly).
By a deed of retirement and appointment dated 29 December 1999, the original trustee retired and P was purportedly appointed in its place. However the appointment was made with a successor protector’s consent, and the successor protector’s own appointment in 1997 was ‘very much in doubt’ since it had been made on the assumption that a single sole protector could be appointed in place of the original two protectors.
P was advised that it was likely that P’s appointment was invalid, ineffective, or void, that it therefore did not have legal title to the trust assets, and all distributions made in the belief that P had been validly appointed were likely to be invalid. The same difficulty applied to subsequent purported changes of trustee – by a deed dated 9 August 2001, P had been purportedly replaced by a Lichtenstein trust company, and then by a deed dated 1 July 2015, P had been purportedly re-appointed as trustee (the Lichtenstein company retiring).
P therefore made the application to be appointed as sole trustee, and to manage the trust on the basis that it had been validly appointed by the deed dated 1 July 2015. D1 and D2 were appointed to represent all minor, unborn, and unascertained beneficiaries. D3 represented the interests of ten adult beneficiaries (including himself). D4 was also a beneficiary. All supported the application.
Held (granting the application):
(1) Appointment as trustees
To exercise the statutory jurisdiction under s31 Trustee Act 1975 (Bermuda), the court must be satisfied that it is ‘expedient’ to make the proposed appointment. In principle, the test of ‘expediency’ should be no different from the test of ‘expediency’ in s47 Trustee Act 1975 (Bermuda), which is construed to mean ‘expedient for the trust as a whole’ (GH v KL [2011], In the Matter of A Trust (Change of Governing Law) [2017], In the Matter of G Trusts [2017], and In the Matter of the H Trust [2019] applied).
Here, the power of appointing new trustees was given solely to the original protectors acting jointly, and the replacement by them with a sole protector in 1997 was likely to be invalid. The power in the deed to replace trustees could therefore no longer be relied upon. The only option for the appointment of new trustees was therefore an application to court under s31 Trustee Act 1975 (Bermuda).
There could be no benefit to allowing the trust to operate without a validly appointed trustee with full power and authority to perform the duties of trustee. This was particularly the case because the trustee had an oversight responsibility of a vast network of extremely valuable trading concerns in Africa. It was therefore ‘expedient’ to exercise the discretion under s31(1) Trustee Act 1975 (Bermuda) to order that P be appointed as trustee of the trust.
(2) Confirmation of prior administration
The court has an inherent jurisdiction to intervene in the administration of a trust, to approve certain acts by trustees, and to authorise trustees to do certain things which are an effective departure from the trust where it is not possible to obtain the consent of all the beneficiaries because they are not all sui juris (Re New [1901] and Chapman v Chapman [1954] referred to).
This jurisdiction may be appropriately exercised to order current trustees to leave undisturbed the acts or omissions of previous trustees whose validity of appointment may be in issue, so that the trust is administered on the same footing as though those acts or omissions had been validly done with the authority of the duly constituted trustees (In the Matter of the Z Settlement [2016] and Schmidt v Rosewood Trust Ltd [2003]referred to).
It has been suggested that the exercise of the inherent jurisdiction falls into defined categories:
- to authorise otherwise unauthorised acts of management or administration of the trust property where an emergency arises connected with the trust property;
- to authorise otherwise unauthorised transactions as a matter of salvage; and
- to authorise and approve compromises of genuine disputes over the destination of trust property.
These however are not exhaustive – they should be seen as examples of where the court has exercised its jurisdiction. They do not define all the circumstances in which the court may think it necessary or appropriate to exercise it.
The court accepted that the task of reconstituting the records of the trust over the last 20 years would be impossible, and the expense of doing so would likely be an enormous drain on the resources of the trust. Exercising the court’s discretion was a pragmatic and sensible response to a situation which had arisen through no fault of P or the beneficiaries. It did not prejudice the beneficiaries since it did not operate to relieve P of any liability that might not otherwise be relieved by the exemption clause in the trust. The court therefore exercised its discretion by ordering that P be at liberty to continue to manage the assets of the trust on the basis that it had been validly appointed as trustee by the deed dated 1 July 2015.
JUDGMENT HON CHIEF JUSTICE HARGUN: Introduction [1] At the conclusion of the hearing of this matter on 27 June 2019 I ordered that: (1) The Plaintiff (‘Current Trustee’) be appointed as from the date of the Order as the sole trustee of the C Trust (‘the Trust’) under s31(1) of the Trustee Act 1975 (‘1975 …Continue reading "Re C Trust [2021] WTLR 69"