The Supreme Court of Bermuda has recently decided two important cases in which it has considered the scope of its jurisdiction to determine disputes relating to trusts that are governed by Bermuda law, but that have significant international and foreign connections (including, for example, foreign assets, foreign settlors, foreign trustees and foreign beneficiaries).
The issue is an important one both in Bermuda and internationally, since the outcome of many international disputes is often affected by the jurisdiction in which they are determined, with the effect that ‘forum shopping’ and jurisdictional skirmishes are common features in international litigation, not least in the trusts context, where the stakes are often enormous.
Anti-suit injunctions in trust disputes
In Re A Trust [2012] Bda LR 79, Chief Justice Kawaley considered an application for an anti-suit injunction that was brought, and supported, by the trustee and various beneficiaries of a Bermuda law trust, seeking to restrain another beneficiary from pursuing foreign proceedings that he had threatened to bring against the trustee in the foreign jurisdiction where the trustee was domiciled.
The hostile beneficiary had threatened to bring those foreign proceedings for the purpose of seeking the compulsory production of trust documents and information, even though this course of action would be inconsistent with various confidentiality obligations imposed upon the beneficiary, as well as a standard clause in the trust deed that identified the Bermuda Court as the proper ‘forum for administration’ of the trust.
In deciding whether or not to grant an anti-suit injunction, the Bermuda Court had to consider whether or not the ‘forum for administration’ clause amounted to an exclusive jurisdiction clause, which would bind the hostile beneficiary to the exclusive jurisdiction of the Supreme Court of Bermuda (in the absence of exceptional circumstances).
The outcome of the litigation in Re A Trust presents a stark warning for disgruntled beneficiaries who might consider bringing proceedings relating to Bermuda law trusts in foreign jurisdictions for tactical purposes
There has historically been considerable debate and uncertainty in the authorities and literature on this topic, and Bermuda’s primary legislation defining the Court’s jurisdictional scope over trust disputes (s9 Trusts (Special Provisions) Act 1989 (T(SP)A 1989)) was drafted more with the aim of flexibility than absolute legal certainty in mind.
Chief Justice Kawaley approached the issue in this case with considerable pragmatism and certainty of analysis, however. He concluded that the mandatory language of the ‘forum for administration’ clause, taken with the combined choice of (a) Bermuda law as the governing law and (b) the Bermuda Court as the forum for administration, ‘points towards the draftsman’s intent that the courts of Bermuda should exclusively determine matters relating to the administration of the trust’.
The Court also accepted that the foreign proceedings threatened by the hostile beneficiary against the trustee were properly characterised as claims raising matters relating to the administration of the trust, and that they were therefore caught by the clause.
The Court therefore granted an anti-suit injunction against the hostile beneficiary, with a view to enforcing the jurisdiction of the Supreme Court of Bermuda.
The Bermuda Court’s resolution of this case should give considerable guidance (and comfort) to settlors, beneficiaries, trustees and draftsmen of Bermuda law trusts (both past and future) that might contain similar ‘forum for administration’ or exclusive jurisdiction clauses: such clauses are likely to be upheld and enforced in accordance with their terms.
The outcome is also consistent with Bermuda’s international reputation as a high-quality trusts law jurisdiction with a supervisory court system that is highly supportive of Bermuda law trusts, as well as the Bermuda Court’s consistent recognition that ‘the establishment of offshore trusts in Bermuda is a major segment of Bermuda’s financial services industry’.1
The outcome is also consistent with Bermuda’s public policy that jurisdiction clauses in Bermuda law trust deeds should generally be enforced in accordance with their terms, just as Bermuda law contracts are generally enforced in accordance with their terms (in the absence of exceptional circumstances). There have been many cases (particularly in the financial services, and insurance and re-insurance context) in which the Supreme Court of Bermuda has stressed the importance of upholding and enforcing exclusive jurisdiction and arbitration agreements by way of anti-suit injunctions and stays of proceedings that are brought in breach of contract, unless there are ‘strong reasons’ not to do so.
The strength of the analogy between trust deeds and contracts is, however, still open to further argument, given recent Jersey case law, for example, and equitable considerations. In this context, Chief Justice Kawaley’s judgment has recently been cited and considered by the Royal Court of Jersey, in Crociani v Crociani [2013] JRC 194A. In that case, on different facts, the Royal Court did not accept that the claims made by the claimants were covered by an exclusive jurisdiction clause contained in the trust deed under consideration, and therefore dismissed a jurisdictional challenge asserted by the defendants. The Royal Court also concluded, in the alternative, that the circumstances of the case were such that it would not enforce the exclusive jurisdiction clause, even if it had otherwise found that the exclusive jurisdiction clause was applicable to the claimant’s claims.
It remains to be seen what kinds of circumstances might be said to give rise to sufficiently good or strong reasons for the Bermuda Court not to enforce a ‘forum for administration’ clause, in the particular context of a Bermuda law trust dispute. No argument was advanced by the hostile beneficiary in the Re A Trust case that there were exceptional circumstances on the facts that should have led to a different result, and so the Court did not need to consider this issue.
Finally, it is worth noting that the outcome of the litigation in Re A Trust presents a stark warning for disgruntled beneficiaries who might consider bringing proceedings relating to Bermuda law trusts in foreign jurisdictions for tactical purposes. Not only is there the risk that they will be made the subject of an anti-suit injunction (and then be held in contempt of court if any such injunction is disobeyed, with potential forfeiture of trust benefits), there are also very significant cost risks associated with litigation of this sort.
This can be seen from the fact that, in its subsequent costs ruling in Re A Trust [2013] Bda LR 21, the Court concluded that it was appropriate to award the successful trustees (and each of the interested beneficiaries that supported the trustees) their separate (and therefore multiple) costs of the anti-suit injunction proceedings, all of which had to be paid by the hostile beneficiary personally, in some cases on the indemnity basis.
In Buchanan v Lawrence [2012] Bda LR 47, the Bermuda Court had also previously held that ‘the usual approach when a party has been found to have deliberately ignored an arbitration clause is for costs to be awarded against them on an indemnity basis when a stay is obtained’, and the Court warned litigants that it would take this approach in future cases (in which context it should make little difference whether the application relates to an exclusive jurisdiction clause, an arbitration agreement, or a ‘forum for administration’ clause).
Service out of the jurisdiction in trust cases
Also of relevance to the scope of the Bermuda Court’s jurisdiction in trust matters is the case of Re Hanover Trust [2013] Bda LR 37, in which Chief Justice Kawaley gave a reasoned, although ex parte, judgment, addressing the circumstances in which a trustee making a Beddoe application or application for directions to the Supreme Court of Bermuda might require the formal leave of the Supreme Court to serve such proceedings on any foreign trust beneficiaries, outside of the jurisdiction of Bermuda.
This is an area in which there has also been some debate in Bermuda law, given the precise wording of Order 11 and Order 85 of the Rules of the Supreme Court of Bermuda 1985, s9 T(SP)A 1989 and an earlier unreported decision of the Supreme Court of Bermuda in the case of Orconsult v Blickle, Civil Jurisdiction 2007: No.349.
Chief Justice Kawaley again approached matters on a pragmatic basis, and concluded that a trustee did not require the prior leave of the Court to serve a Beddoe application or application for directions out of the jurisdiction of the Court on a foreign beneficiary. However, he did acknowledge that the Court’s leave may be required in the context where ‘an adverse claim’ is asserted against a ‘foreign substantive defendant’, in circumstances where such a defendant might be anticipated to contest jurisdiction.
Chief Justice Kawaley’s judgment, in this respect, is consistent with the decision of the Grand Court of the Cayman Islands in Merrill Lynch v Demirel [2010] 2 CILR 75, and it clearly makes the initiation, service and pursuit of non-contentious applications to the Bermuda Court by trustees considerably easier (and cheaper) than would be the case if leave to serve out were required in every case. However, since the application was decided on an ex parte basis only, it remains to be seen what might happen in the event that a foreign beneficiary does seek to contest jurisdiction or the validity of service in the future (whether in the context of Bermuda proceedings or foreign recognition and enforcement proceedings).
- 1Kawaley J in DPP v Roberts [2006] Bda LR 22 at paragraphs 75 to 76