Helene Anne Lewis examines the latest developments within the BVI's Trusts and Estate Law.
The BVI has long been a jurisdiction that provides innovation and certainty to its clients in respect of its financial services offerings. At least over the last 15 years, while paying close attention to the evolving needs and requirements of its clients, the BVI financial services industry has collaborated closely with BVI technocrats and legislators to introduce forward looking legislation that meets those needs while critically not offending fundamental principles of trust law.
Having introduced the VISTA trust in 2003, the BVI has made several consequential amendments to the raft of legislation that governs its trust and estates business: the BVI in 2013 passed several amendments to several statutes that impact the governance of BVI trusts and the capacity and authority of BVI trustees. In the meantime, the BVI has been maturing as a forum for trust litigation and several important trust and estate cases have recently been decided in our courts. Amendments to the Virgin Islands Special Trusts Act (VISTA) making the regime even more flexible and attractive were introduced in 2013 and were supported by other innovative amendments to the Private Trust Company Regulations which make the BVI private trust company (PTC) a far more interesting and attractive vehicle in the structuring of succession and estate planning. The VISTA amendments are themselves underpinned by amendments to the Trustee Act which principally and importantly introduced a perpetuity period of 360 years, giving a nod to the amendments to developments in English law which in 2009 introduced a perpetuity period of 125 years while many of the BVI’s competitors also extended or (more controversially) abolished their own provisions in this regard.
Other amendments in 2013 that are still not widely known relate to the updating of VISTA trusts to permit BVI PTCs to be trustees, and provisions for transferring assets into a VISTA trust – subject to the condition that the transferor trust be also governed by BVI law and that one of the trustees of the BVI trust is a BVI licensed trustee of a BVI PTC. The 2013 amendments also provide for the introduction of a “trigger direction” in a VISTA trust deed which will have the effect of applying or “dis-applying” VISTA provision to a BVI trust upon the occurrence of a particular event named in the original trust deed (such as a direction by the protector). This provision obviously adds a great deal of flexibility and attractiveness to the use of VISTA trust as part of any estate planning structures.
Now that the BVI is maturing as a premier trust jurisdiction, several very interesting developments have recently been taking place in BVI courts. Trust litigation has been occupying the attention of the courts and important rulings are being made. The first of these that I wish to consider concerns a probate matter that concerned the entitlement to apply for Letters of Administration – that is authority to administer the estate of someone who has died without leaving a will. In Liao v. Toh the Court was asked to consider who was entitled to apply for a grant of letters of administration in circumstances where a shareholder of a BVI company died intestate, and the potential beneficiaries could not agree on who should apply. The BVI Probate Rules, which date from the 1980s but which are currently under review, do not currently provide an order of priority establishing the entitlement of possible beneficiaries to apply. An application was therefore made to the BVI Court petitioning for the exercise of its jurisdiction. The Court ruled that in accordance with the provisions of section 11 of the West Indies Associated States Supreme Court (Virgin Islands) Act, where the BVI has no special provision in its probate rules, the equivalent English rules apply. The English Non-Contentious Probate Rules (the NCPR) provide in Rule 30 that in applications relating to the estate of persons who die domiciled outside of England and Wales the following are entitled to apply: (a) the person entrusted with the administration of the estate by the court of the jurisdiction in which the deceased died domiciled or, if no one, then (b) the person beneficially entitled to the estate under the law of the domicile (or, if more than one, to such of them that the court decides); or (c) such person as the court decides. Justice Vicki Ellis went on to provide useful guidance in relation to the application of Rule 30 of the NCPR in the BVI context. She ruled that in such circumstances, first, preference would be given to the person most likely to convert the estate to the advantage of the beneficiaries; secondly, a grant would not be issued to someone who was bankrupt, incapacitated or of bad character. Thirdly, the court would not issue a grant to a person who had a material conflict of interest; fourthly, preference would be given to the person with the largest beneficial interest in the estate (or one selected by a majority of the beneficiaries) or, if all these factors are equal, to the person who first applies.
Another very interesting ruling to those who use BVI VISTA trusts was handed down in Appleby v CITCO. Citco was appointed the sole trustee of a BVI (non-VISTA) discretionary trust. The only asset of the trust was the shares in a BVI holding company which held a portfolio of investments. Citco delegated the management of the investments to a professional investment manager who invested the company’s assets in speculative trading – contrary to the provisions of the trust’s investment guidelines - as a result of which almost all the trust fund was lost. The settlor therefore requested that Citco retire in favour of Appleby and Appleby brought proceedings against Citco for breach of duty relating to the management of investments. In the BVI Commercial Court, Bannister J ruled that the trustee was under a duty to ensure that it had in place appropriate risk management procedures in order to ensure that the investment guidelines were being observed. He also said that the anti-Bartlett clause (in paragraph 8 of the Second Schedule to the Trustee Act) did not relieve the trustee of the duty to satisfy itself that nothing untoward was adversely affecting the value of the trust fund. Justice Bannister further ruled that the clause in the trust deed which purported to protect the trustee was an indemnity for liabilities (to third parties) and not an exoneration clause preventing liability for breach of trust on the part of the trustee or any of its delegates. As a result Citco was liable to the trust fund for all losses arising from the substantial decrease in value of the investments.
The case is instructive to trustees and their legal advisers. In the first place where the trust assets comprise shares in companies, always consider the use of VISTA trusts - and more so if the underlying assets of the trust are intended to comprise speculative investments. Be really innovative and consider “VISTAising” non-VISTA trusts in appropriate circumstances. Secondly, if the trust is not a VISTA trust, the exoneration provisions in the trust deed should be very carefully reviewed to ensure that their effect is not simply to establish a third party indemnity. Finally, unless the trust is a VISTA trust, it is incumbent on the trustee to be proactive in monitoring trust investments (even if these are held through companies and even if investment decisions have been delegated to experts). We now have confirmation from the court that an anti-Bartlett clause will not protect trustees who are in breach of these duties.
In The New Huerto Trust, a very recent decision of the Eastern Caribbean Court of Appeal (on appeal from the BVI High Court), the matter for the court’s consideration was whether a widely framed power of appointment in a trust deed - authorising the trustee to appoint capital among named beneficiaries - permitted the trustee to exclude a named beneficiary. The trustee had applied to the court for the approval of a deed of appointment excluding the settlor as one of the beneficiaries. The purpose of the exclusion was in order to prevent the trust assets from being caught by a worldwide freezing order by the English divorce court. The Court of Appeal ruled that the power of appointment could be used to exclude beneficiaries.
Equity v Yang Hsueh Chi Serena was a case concerning the interpretation of a very badly drafted trust deed. The precedent which had been used for preparing the original trust deed was one for a discretionary trust, but, not unfortunately uncommonly – though of course quite improperly, given that the trust was a discretionary trust - the names of six individuals, with a “percentage of entitlement” next to their names, was set out in a schedule. The proposition on behalf of the six beneficiaries was that they were entitled to an immediate fixed interest in the whole of the trust fund in the percentages set out in the schedule. The plaintiffs argued that a rule of commercial law to the effect that, in cases of conflict, the court will give more weight to “superadded terms or definitions” than to terms or definitions which appear in the standard form of a contract applied. The argument was rejected since the settlement was not a standard commercial form in common use between merchants. Rather, the court held that, in construing the document as a whole, the trust was a fully discretionary trust and that the percentages did not create an immediate entitlement. Naturally, the fundamental principle of paying attention to details when drafting on the basis of a precedent cannot be over-emphasised. Indeed, it should be noted that in a 2003 Jersey case, The Double Happiness Trust, the court ruled that the drafting was so confused that the trust was void for uncertainty and so it was actually quite fortunate for the beneficiaries in the Serena case that the BVI Court took a fairly benevolent approach to the construction issue.
Hélène Anne Lewis