Minister Proposes Amendment To Trustee Act

Mr. Speaker, I am pleased to introduce to this Honourable House another amendment Bill that is designed to make Bermuda’s Trust legislation more attractive and competitive. The proposed amendment to the Trustee Act 1975 (the Act) will provide greater flexibility, clarity and certainty in our legislation with respect to the conduct of trust business in Bermuda.

The Bill seeks to amend the Act to provide a statutory framework for applications to be made to the Bermuda court on the basis of a common law principle known as “the Rule in Re Hastings-Bass.”

Mr. Speaker, in general, the Courts do not interfere in discretionary decisions made by trustees that relate to trusts or trust property. Exceptions to this rule were established in the 1975 case of Hastings-Bass. This was later comprehensively articulated in the 2005 case of Seiff v Fox.

In summary, the Hastings-Bass Rule provides that the courts will set aside an exercise of trustee power if the resultant effect of that exercise was not as intended. It must also be evident that the trustee’s actions would have been different had they taken account of relevant considerations to which they failed to have regard.

For example, in the 2005 case of Seiff v Fox the trust assets included interest in estate and valuable chattels. Having taken tax advice, the trustees exercised a power of appointment. It was later discovered that the advice was erroneous and the trustees sought to have the appointment set aside.

The tax liability in respect of the interest in the estate was not thought to be large but in respect of the chattels it was estimated to be One Million Pounds. The Hastings-Bass rule applied and the exercise of the power of appointment by the trustee was set aside.

Mr. Speaker, the principle of Hastings-Bass relief has its origins in the English courts. Between 1975 and 2011 it has been applied in a number of cases in the UK, Bermuda and other common law jurisdictions such as Scotland, Cayman Islands, Jersey, British Virgin Island and the Isle of Man.

The rule has been used for over 25 years to mitigate any negative impact on trust beneficiaries and to relieve trustees of the consequences of errors in their exercise of fiduciary power. In such cases, the Court has exercised its remedial jurisdiction to reverse the legal and commercial effects of such actions. These have included adverse tax consequences for the trust and trust beneficiaries.

Mr. Speaker, a succession of relatively recent court cases have further developed the principle that the exercise of a discretionary power by trustees may be declared void and set aside on the basis of the Hasting-Bass rule.

For example, in the 2011 cases of Pitt v Holt and Futter and Futter it was originally decided that the actions of the Trustees could be set aside under the Hastings-Bass rule and the trusts were successfully relieved of negative tax consequences.

However, Mr. Speaker, the application of the Hastings-Bass rule in the combined cases of Pitt v Holt and Futter and Futter was challenged and taken to the Court of Appeal. In May 2013 the English Supreme Court delivered a judgment which upheld the Court of Appeal decision, that the Hastings-Bass rule had been incorrectly applied in both cases, and suggested that the rule may have also been misapplied by the lower courts in other cases.

Essentially, the Court of Appeal significantly narrowed the application of the Hastings-Bass rule and determined that a breach of fiduciary duty is a prerequisite for a successful Hastings-Bass application.

Mr. Speaker, although the English Court of Appeal and UK Supreme Court decisions are not technically binding on offshore courts, such decisions are persuasive and are often followed by other common law courts.

As a consequence of those UK court decisions in 2013, several competitor jurisdictions have enacted legislative provisions to give effect to the principle and application of the Hastings-Bass rule as it had originally stood since 1975 and up to the 2013 Supreme Court Judgement.

Put simply, competitor jurisdictions have hard coded the original interpretation of the Hastings-Bass rule into their legislation to return to the way Hastings-Bass had always been interpreted prior to the 2013 Supreme Court judgement. Essentially, this is to interpret that a breach of fiduciary duty is not a pre-requisite for a successful Hastings-Bass application.

Mr. Speaker, what does this mean for Bermuda? The amendment now being proposed to the Trustee Act 1975 seeks to provide a simplified and clear statutory framework for making a Hastings-Bass application. Following this amendment, the Act will set out conditions that may be satisfied in order to effect a Hastings-Bass application. If the court exercises its power to set aside any action taken, it may render the action void ab initio.

Mr. Speaker, it is important to note that, in this context, the discretion of the court is to be exercised for the benefit of the trust’s beneficiaries. Although there is often an incidental benefit conferred on the trustee [in terms of mitigating their potential liability for negligent errors and omissions], that is not the purpose for which the court exercises its remedial jurisdiction;

Mr. Speaker, this amendment is consistent with Bermuda public policy, in favour of the establishment and maintenance of trusts in Bermuda for legitimate estate and tax planning purposes.

Mr. Speaker, with high net worth individuals from emerging markets gaining familiarity with Bermuda as a reputable and well regulated jurisdiction, it is anticipated that this amendment will lead to further trust business for Bermuda.

Mr. Speaker, with our existing legislation, if a potential trust settlor feels that, at some stage, they may wish to avail themselves of Hastings-Bass relief, our competitor jurisdictions have a strategic advantage by having such provisions coded in their law.

There is also the risk that an incumbent Bermuda trust that seeks the benefit of a Hastings-Bass relief might choose to re-domicile to one of those more accommodating jurisdictions, in the interests of certainty. In terms of marketing Bermuda to potential trust clients, the absence of codification of the Hastings-Bass rule puts us at a disadvantage compared to our competitor jurisdictions.

Mr. Speaker, adopting a clear statutory framework for the application of the Hastings-Bass rule in Bermuda will provide certainty as to the application of the rule in Bermuda law and make Bermuda more competitive with other jurisdictions.

Mr. Speaker, this legislation facilitates the modernization of Bermuda’s trust law and product offering in order to support the retention and creation of jobs for Bermudians in the trust industry and the economy of Bermuda, generally. It will enhance Bermuda’s reputation as a quality and reputable jurisdiction for international trust business.

Mr. Speaker, the Trust industry in Bermuda makes a material contribution to our economy. Last May the BDA Trust Focus Group surveyed 30 trust companies on the island. 15 of them responded with substantive data that showed that those 15 directly employ 158 people in Bermuda with nearly 80% Bermudian. Those 15 that responded had $125 billion in assets under administration with their investments benefitting Bermuda’s investment managers, funds and our banking sector.

Mr. Speaker, in closing, I wish to thank the Ministry of Finance, the Attorney-General’s Chambers and BDA Trust Law Reform Committee for their help in developing this amendment and their on-going efforts to keep our Trusts legislation up to date.

Thank you, Mr. Speaker.

Mr. Speaker, I move that this Bill be referred to Committee.

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