Bermuda case: the court’s power where a trustee is invalidly appointed

The court’s approach

To date, the usual approach has been for trustees to seek an order for rectification. This means that the court effectively re-writes history and confirms all trustee acts to date. This can have an impact on when actions are deemed to take place, which in turn can have problematic tax consequences.

In this case, however, the Bermuda court referred to the Jersey case of In the matter of the Z Settlement [2016] JRC 048. In that case, the Jersey court held that it may, exercising its inherent jurisdiction to intervene in the administration of a trust, order the trustees to leave undisturbed the acts or omissions of purported trustees so that the trust is administered on the same footing as though those acts or omissions have been validly done.

In this Bermuda case, the court ordered that the purported trustee be permitted to continue to manage the assets of the trust on the basis it had been validly appointed in 2015. This is a pragmatic approach which removed the need for the trustee to examine all of the trust’s records over a 20-year period, which the court acknowledged would be a time-consuming and expensive task.

Facts of the case

The claimant was the trustee of a trust which owned valuable interests in a significant trading group in Africa, which employed a large workforce. The beneficiaries of the trust were members of a large family.

The protectors of the trust had power to appoint new trustees. The protectors named in the trust deed were two companies, which had to act jointly. However, when the current trustee came to be appointed, these two protectors did not make the appointment; instead the family appointed a new protector in their place, who then made the appointment. The family did not have the power to do this, and so the new protector also did not have the power to validly appoint the trustee. As a result the trustee’s actions since its appointment were also invalid.

An application was therefore made to the court by the trustee (and supported by representative beneficiaries) to: 

• appoint the trustee as trustee; and
• allow the trustee to continue to manage the trust assets as if it had been validly appointed in 2015.

The court approved the application on the basis that this was in the best interests of the beneficiaries. It was also the court’s view that there was no suggestion of bad faith and in any event the order did not operate to relieve the trustee of any liability.

Key point to note

This is a very helpful judgment from Bermuda and hopefully indicates a trend (already seen in Jersey) for a more pragmatic approach by courts when mistakes have occurred when appointing trustees.