Offshore Case Digest: Issue No. 10 - Bermuda, The British Virgin Islands And The Cayman Islands

BERMUDA

SUPREME COURT

TRUSTS (SPECIAL PROVISIONS) ACT, 1989 - BEDDOE RELIEF - NON CHARITABLE PURPOSE TRUST - INDEMNITY - DEFENCE BY TRUSTEES

Trustee L and Others -v- The Attorney General and Others [2015] SC (Bda) 41 Com (15 May 2015)

The Plaintiffs are the Trustees (the "Trustees") of certain Bermuda Purpose Trusts (the "Trusts") established under the Trusts (Special Provisions) Act, 1989 (the "1989 Act"). This was a ruling on the Plaintiffs' application for Beddoe relief with respect to proceedings (the "Main Action") brought against them by the Second Defendant ("D2").

The application was novel in two respects: (i) so far as the Court or Counsel were aware this was the first time that Beddoe relief has been sought by the Trustees of a non-charitable purpose trust, albeit the purposes of the trusts in question did include some charitable purposes and (ii) there has not previously been a claim made to trust assets of such high value as those with which the present case is concerned without any beneficiaries to defend the Claim.

The total value of the Trust assets was large with a substantial part of those assets consisting of shares in a group of companies (the "Companies") founded by S and T. Both men were deceased. The Directors of the Trustees included Child 1 and Child 2, who were children of S and T. D2 sued in its proposed capacity as administrator in Bermuda of S's estate; in D2's capacity as one of the heirs of S (and purportedly on behalf of all the heirs). D2's primary case in the Main Action was that all the Trusts were void, or alternatively that the transfers of assets into the Trusts should be set aside, and that the assets form part of the estate.

The primary issue arising on the Beddoe application was whether the Trustees should defend D2's primary case in the Main Action and have an indemnity in respect of their costs of doing so. In considering the issue, the Judge attached particular importance to the absence of any person with a real interest in defending the claims and the fact that there were sufficient prospects of success to warrant the Trustees in defending them. The Judge was satisfied that these factors outweighed the risk of injustice to D2 and the other heirs, should D2 prevail in the Main Action. As such, the Judge was satisfied that the Trustees should, if so advised, defend D2's primary case in the Main Action and granted an indemnity from the Trust assets for that purpose.

RULING ON COSTS - THE EVIDENCE ACT, 1905 (AS AMENDED) - ORDER 70 OF THE RULES OF THE SUPREME COURT, 1985

The Patriot Group, LLC -v- Hilco Financial, LLC N/K/A 1310 Financial, LLC & Others [2015] SC (Bda) 38 Com (23 June 2015)

This hearing was listed to determine how to deal with the costs arising from a prior judgment in which the Court refused the Applicant witness' application to set aside an, ex parte, Order for her examination; an order that had been made without a hearing. While the Judge had found that the Order, as originally granted, was liable to be set aside on various grounds including material non-disclosure, these irregularities occurred in part because the application was prepared and prosecuted as if it was a non-opposed application when in fact the witness had not previously been contacted. In light of the fact that the Respondents had subsequently: (a) offered to vary the Order by including conditions in relation to the proposed examination and (b) on or about 7 November 2014 filed an affidavit which fortified the strength of the merits of the original application and to save costs, the Judge exercised his discretion in favour of varying the Order rather than setting it aside. The Applicant also achieved some marginal outcome of success in terms of broadening the scope of the examination conditions, which the Respondents had previously offered prior to the hearing.

The Respondents sought to persuade the Court that since they had substantially succeeded on the application to set aside, and were willing to concede that they should pay the Applicant's costs up to 7 November 2014, the Applicant should be required to pay the costs of the application to set aside. The standard rule that costs should follow the event, having regard to which party had succeeded in 'real-life' terms was relied upon: Binns -v- Burrows [2012] Bda LR 3 (at Paragraph 5) and Kentucky Fried Chicken (Bermuda) Ltd. -v- Minister of Economy [2013] Bda LR 34 (at Paragraph 14).

The Applicant contended that the Applicant should be awarded her costs and in any event not be required to pay the Respondents' costs. It was submitted that the position of a non-party witness engaged distinctive costs rules according to which the starting assumption was that where evidence was being sought from a non-party, that party is entitled to their costs. The Applicant relied on the authority of Paragraph 46.1 of the Civil Procedure Rules, 2000 ("CPR").

The Judge agreed with the Respondents' submission that the ordinary rules as to costs apply. In doing so the Judge declined to follow by analogy the practice under Rule 46.1 of the CPR on the grounds that the type of application it dealt with was not analogous.

In the exercise of the Court's discretion, the Judge ordered the Respondent to pay the Applicant's costs of responding to and applying to set aside the, ex parte, Order up until 7 November 2014. The Judge held that prior to that date, it was inconceivable that the application to set aside would not have succeeded both on the merits and in the result. After that date the Judge found that the parties ought to have been content to negotiate a consensual variation of the, ex parte, Order in terms which were, at that point, substantially agreed.

EX TEMPORE RULING ON COSTS - COSTS FOLLOW THE EVENT - REAL WORLD SUCCESS OF CLAIM - CONSIDERATION OF THE BACKGROUND TO THE LITIGATION

David R. Whiting -v- Torus Insurance (Bermuda) Limited [2015] SC (Bda) 17 Civ (6 March 2015)

In this matter the Plaintiff, was awarded US$1909 out of a Claim for wrongful dismissal that was potentially worth just over US$300,000. The Plaintiff sought costs on the usual 'costs follow the event' basis. The Defendant contended that having regard to the 'infinitesimal' financial success that the Plaintiff achieved, the appropriate order should be no order as to costs.

In the present case the Judge accepted that the starting assumption must be that the Plaintiff should be entitled to his costs. But, having regard to the authorities cited and looking at the huge disparity between the amount awarded and the amount originally claimed, stated that the Court was bound to find that in 'real world' terms the Plaintiff had not succeeded because this case was quintessentially a claim about money.

The only question to consider was, to what extent the Court should award the Plaintiff any costs at all. In this regard, the Judge outlined that it was the Court's duty to look at the background to the litigation to see how the litigation should have been conducted. In doing so the Judge held that from 13 June 2014 when the Defence was filed, it would not be reasonable for the Court to exercise its discretion to award the Plaintiff any costs.

TRUSTS - COURT'S FUNCTION IN APPROVING EXERCISE OF TRUSTEE'S DISCRETION - DOES REGARD NEED TO BE GIVEN TO WIDER SOCIAL EFFECTS OF PROPOSED SETTLEMENT

In The Matter Of ABC Trusts [2015] SC (Bda) 29 Civ (10 September 2014)

On 18 August 2014, the Judge approved a decision of the Trustees to proceed to conclude negotiations commenced some years ago with the onshore tax authorities about certain personal 'wealth' taxes which were potentially due from the Trusts and/or the Beneficiaries. The contested application by the Trustees for further directions in relation to the approval sought, raised legal questions which are likely to be relevant in future cases and therefore, the Judge provided reasons for the same.

Court's function in approving proposed exercise of Trustees' discretion

The fifth Defendant in this matter sought to argue that: (a) the Trustees' application involved a surrender of their discretion to the Court, (b) the Court should accordingly be put in possession of all material relevant to the exercise of that discretion and (c) the Court's function is solely to determine what ought to be done in the best interests of the estate. The first two limbs of that submission were controversial.

The Judge did not accept that the Court was compelled to find that in seeking the directions which the Trustees sought, they were surrendering their discretion to the Court. Instead, the application was more properly characterised as seeking the blessing of the Court for a momentous decision.

Were the Trustees required to have regard to the wider social effects of the proposed settlement and to interests other than those of the Beneficiaries?

The Trustees in the present case effectively conceded that it was consistent with the commercial interests of both the Trust and the Trustees to avoid a situation where the Trustees and/or the Beneficiaries could be fairly accused of manifesting a socially irresponsible attitude to the payment of onshore taxes which were properly due. That was the driving motivation behind initiating the negotiations, which have resulted in the proposed settlement. The Trustees' definition of the content and scope of their duties in this regard was entirely consistent with the Judge's extra-judicial opinion in that:

"...it is simplistic to imply that offshore commercial law operates in an ethically deprived legal zone... Bermudian offshore structures are formed in and regulated by a legal framework which aims to...ensure compliance with internationally recognised standards of commercial morality."

(See Offshore Commercial Law in Bermuda (Wildy Simmonds & Hill: London, 2013), Paragraphs 1.64, 1.69)

Applying the above principles to the facts of the present case, the Judge found that in all the circumstances:

1. it would be...