Trusts and Private Client Advisory Group - harneys.com March 2020
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Trusts and Private
Client Advisory
Group
March 2020
harneys.com
Table of Contents
01. WelcomeError! Bookmark not defined.
11. The Court’s inherent
jurisdiction to remove
02. NEWS Update!
Trustees? Nothing
exceptional
03. Passing the Family Torch
12. “I would have acted
04. A Siren Song for Asset
lawfully, had I not acted
Protection Trusts?
unlawfully” – a means to
escape equitable
05. If by my life or death I can
compensation?
protect you, I will!
13. The Rationality Test!
06. Financial Crime in the
Cayman Islands
14. What is sufficient evidence
of the knowledge and
07. Keeping it in the Family
approval of a Testator?
08. Keep Calm: Normal Service
15. Where there’s a Will, there’s
Resumed!
a way!
09. Safeguarding Trustees'
16. Lunch and Learn
interests
17. STAR GUEST!
10. What are the ‘Limits’ of a
Trustee’s indemnity?
harneys.com
01
Welcome
Welcome to the second edition of our Quarterly Trust
Update.
First, we would like to take this opportunity to thank our
friends, colleagues and clients for their support during
2019. Since launching our Trusts & Private Client
Advisory Group we have been incredibly fortunate to
assist many of you with the establishment,
administration and structuring of various BVI and
Cayman Islands trusts and advising on contentious
private wealth matters. It has been an absolute
pleasure to work with you and we look forward to
continuing to work with you in 2020.
Secondly, we received a great response to the first
edition of our Trust Quarterly Update and want to thank
all of you who wrote or spoke to us about it. We really
appreciate your opinions and feedback. Please keep it
coming!
In our second edition we are delighted to update you on
the latest developments in the trusts and private client
sphere through our thought-provoking articles,
interesting case law from around the world, news
updates and engaging topics that we hope are relevant
to your trust and private client practice and your
business needs.
We hope you enjoy reading this Update!
Best regards
Trusts & Private
Client Advisory Group
harneys.com
3
02 Harneys News Update
LAUNCH PARTY: A Night at the Opera Ayana Hull named Head of BVI Private
Wealth team and Regulatory practice
The Trusts & Private Client Advisory Group officially
launched its services in Asia at a fabulous cocktail function
with over 90 friends and colleagues at one of Hong Kong’s
leading art galleries in Autumn last year.
The event celebrated Harneys new tailored service which
caters for clients’ contentious and non-contentious trusts
and wealth planning needs.
The new team of 14 specialises in matters involving the
establishment, administration and structuring of all types
of BVI and Cayman Islands trusts, cross-border probate,
succession planning and private wealth issues and its
lawyers are market leaders in contentious international
trust and estates disputes.
Please feel free to reach out to Nicola Roberts, Partner We are happy to announce the promotion of Ayana Hull
and Asia Head of the Trusts and Private Client Advisory to Head of the BVI Private Wealth and Regulatory
Group if you like to discuss any of our services. practice. Ayana has over 15 years of experience practising
BVI commercial law and has been with Harneys since
2013. She regularly advises both corporate and private
individuals wishing to establish, operate and invest in the
BVI. We are confident that under Ayana’s leadership, the
BVI Private Wealth and Regulatory practice will continue
to strengthen and prosper. We wish Ayana every success
in her new role.
We would also like to offer a special congratulations to
Jayesh Chatlani on his promotion to Counsel and James
Granby on his promotion to senior associate. Keep up the
excellent work! Jayesh is now based in our Singapore
office and James is in our Hong Kong office.
Asia Trusts team welcomes 3 new members
We are pleased to welcome Maggie Kwong, Frankie
Pang, and Beverly Wong who recently joined the Trusts
& Private Client Advisory Group in Asia.
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4
New Year’s Sundown Soirée Private Client Forum Americas 2020, Mexico
To welcome in the New Year Harneys Singapore office Charles Moore from our Cayman team has recently
hosted a New Year’s Sundown Soirée at The Clifford Pier returned from Playa del Carmen, Mexico having attended
on 15 January 2020. The event was attended by over 400 the Private Client Forum Americas 2020.
clients.
Charles spoke at an interactive and thought-provoking
The evening began with a traditional lion dance boardroom discussion on reserved powers, artificial
performance with the hope of ushering in happiness, intelligence and insolvent structures.
prosperity and abundance for the year ahead.
Harneys would like to wish everyone great happiness and
prosperity in the Year of the Rat.
The Trust and Estates Litigation Forum 2020
Cayman and BVI Trusts teams attend STEP in Marrakech
Cayman Islands Conference 2020 Nicola Roberts, Claire Goldstein (BVI office), Jessica
Williams and Charles Moore (Cayman office) have also
Global Head of Harneys’ Trusts practice, Henry Mander,
just returned from the Trust and Estates Litigation Forum
spoke as part of a panel at the STEP Cayman Islands
2020 in Marrakech.
conference in January. The event explored topical issues
with and a special focus on wealth structuring. In
The conference sessions were excellent and it was a great
attendance from Harneys were also Jessica Williams,
opportunity to connect with senior practitioners (and
Charles Moore and Janeen Al-Jadir. Congratulations
reconnect with old friends) and discuss recent contentious
Henry on a stalwart performance!
trust proceedings from across the globe. The welcome
debate was of particular interest as it involved a
ConTrA in Helsinki, Finland discussion regarding what trust investments, across a
range of exotic assets, posed the greatest risk of litigation.
Francesca Gibbons from our London office recently
Was it cars, carats, cabernet, crypto or cannabis stock?
attended the third Trusts in Litigation conference in
Answers on a postcard please!
Helsinki on 6 and 7 February. Francesca is a committee
member of ConTrA, the Contentious Trust Association
based in London.
The conference covered pertinent and current issues
affecting contentious trust practices and was another great
opportunity for up and coming lawyers who specialise in
trusts disputes to discuss their experiences and share
knowledge. We are told the plate smashing and the Greek
dancing was an added extra!
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5
03 Passing the Family
Torch
Flexible British Virgin Islands (BVI) and Cayman Islands The appropriate wealth planning structure will often
tailored solutions are available for Asian clients who wish depend on the family’s needs, he assets involved and the
to put in place effective wealth succession plans. complexity of the succession planning goals.
The options available can address concerns that may If you would like further advice on succession planning or
relate to the use of unfamiliar common law trust structures related matters please do not hesitate to get in touch. We
and issues relating to relinquishing ownership and control would be delighted to assist,
of assets, confidentiality, and costs.
BVI or Cayman Islands wills are a simple planning tool.
They can decrease the amount of time that an estate is in
probate and therefore reduce corporate uncertainty
caused by the death of a sole shareholder director. More
sophisticated solutions, which cater for complex
succession planning issues, include: discretionary trusts,
VISTA or STAR trusts.
Assets held in BVI or Cayman Islands trusts are protected
by ‘firewall’ provisions that reduce the threat of foreign
laws, e.g. forced heirship laws that would otherwise
operate against assets transferred into trust. Privacy is
also preserved since trust documents are confidential and
there are no registration requirements in the BVI or
Cayman Islands.
The trusts legislation in both the BVI and Cayman Islands
can permit a wide range of powers to be reserved by a
settlor (or granted to others, such as a protector) without
affecting the trust’s validity.
Private trust companies, family office solutions, and
Cayman Islands Foundation Companies are also available
and can provide an effective alternative where there is
reluctance to transfer significant family wealth and control
of businesses to a third party trustee.
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6
04
A Siren Song for
Asset Protection
Trusts?
The advent of global economic and regional political Examples of “emergency events” might include:
uncertainty has unsurprisingly brought about an increased
focus on ensuring that existing and/or proposed The enactment of a law in the trust’s jurisdiction that
arrangements for wealth planning and asset protection are is hostile to the operation of the trust, such as a law
sufficiently robust to withstand potentially drastic changes providing for the compulsory acquisition by the
to the current economic and political landscape. government of, or the imposition of taxation on, trust
assets; or
When establishing a trust, a settlor will no doubt think
carefully before choosing a trustee and the governing law The commencement of a claim against the trust
of the trust. There are a multitude of factors relevant to assets, such as a claim by a creditor of the settlor or
these decisions but sometimes the location of the trustee beneficiary of the trust.
and the settlor’s familiarity with the laws of a particular
country can be deciding factors. Does a flee clause work?
In uncertain times, however, a settlor may also wish to In short, it is impossible to say with absolute certainty that
include a mechanism in a trust instrument to enable a a flee clause will work as intended.
prompt change to the trustee and/or the trust’s jurisdiction,
such as a flee clause. The primary difficulty associated with flee clauses is that
they are largely untested, and a person (or government)
What is a flee clause? with an interest in upsetting the trust will have a number of
potential avenues for attack.
A flee clause is a clause in a trust instrument that provides
for the automatic transfer of trust assets to a replacement A person may seek to attack the trust in either the original
trustee upon the occurrence of certain specified events. or the replacement trust jurisdiction, or could bring a claim
Such a clause may also provide for an automatic change in the jurisdiction where the trust assets are located.
to the governing law of the trust. Therefore, it is necessary to consider whether each of
these jurisdictions will recognise a transfer of assets
What will trigger the operation of a flee completed pursuant to a flee clause.
clause?
The costs of investigating this issue and the residual
The events that trigger the operation of a flee clause must uncertainty may outweigh the potential benefits of
be set out clearly in the trust instrument. Careful including a flee clause in a trust instrument, particularly if
consideration must be given to drafting a flee clause since there are viable alternatives.
there is both the risk that the flee cause will not be
triggered when intended and the risk that it will be
triggered when not intended.
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7
In addition, there are likely to be practical difficulties By placing the power to transfer the trust assets and
associated with the use of a flee clause. In order to change the trust’s jurisdiction in a person other than the
achieve the intended result of a flee clause, it must be trustee (ie a protector), it effectively takes the authority out
possible for assets to be transferred pursuant to the of the trustee’s hand and places it in the hands of a third
clause with sufficient speed. This will require the party.
“emergency trustee” to be identified in advance so that the
trustee’s consent to act may be obtained. A trustee that is Subject to the terms of the trust, the trustee maybe held
on standby to receive trust assets will need to be provided harmless for following the third party’s exercise of the
with sufficient information about the trust, likely on an power such that there would be no need to obtain court
ongoing basis, to satisfy its KYC/CDD and internal permission or the beneficiaries’ assent to the transfer. The
onboarding requirements. Practically speaking, this will trustee’s burden would simply be to satisfy itself that the
come at a cost to the trust. power was exercised in accordance with its terms.
Further, regardless of the sympathy that the original Nonetheless there may be some exposure if there was a
trustee might have to the settlor’s desire to include a flee delay in transferring title to the assets. This exposure
clause in a trust instrument, the original trustee will however may be eradicated if the ‘resettlement clause’
inevitably require sufficient protection by way of an also gave the third party the power to order the trustee to
indemnity before it relinquishes its lien over the trust liquidate the asset portfolio and immediately settle the
assets. proceeds into a new trust in the new jurisdiction. This
provision could not only exculpate the trustee from liability
The emergency trustee will also need an indemnity, for any adverse tax consequences as a direct result of the
including in respect of any actions it takes in assuming liquidation but also exculpate the third party.
responsibility for trust assets if the transfer is subsequently
found to be ineffective. Therefore, it may be desirable to
negotiate such indemnities in advance.
These are only some of the issues that are worthy of
consideration in deciding whether to include a flee clause
in a trust instrument.
A settlor must also give consideration to the possible tax
implications associated with a transfer of assets pursuant
to a flee clause and pre-empt any additional practical
difficulties that might arise according to the nature of the
trust assets.
What are the alternatives?
1 Select a stable trust jurisdiction from the outset.
The Cayman Islands and BVI are British Overseas
Territories that enjoy self-government in a stable political
environment. They are both well-respected, sophisticated
legal jurisdictions and both have reputations as leading
financial centres. The general principles of trust law in
both jurisdictions are derived from English trust law and
both jurisdictions have implemented innovative trust
legislation, creating modern and flexible jurisdictions within
which to administer trusts.
2 Reserve the power to transfer to the trust assets and
change the trust’s jurisdiction (‘a resettlement
clause’).
In the Cayman Islands and the BVI, it is permissible to
reserve power to the settlor or for the settlor to grant
power to a person other than the trustee (such as a
protector) without affecting the validity of the trust.
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05
If by my life or death
I can protect you, I
will!!
The role of the protector has become key in the In Re the Circle Trust, HSBC International Trustee Ltd
management of offshore trusts. Its rise and development v Wong and Others (2006) 9 ITELR 676, the Grand Court
can be seen as further evidence of the flexibility of the of Cayman Islands considered whether beneficiaries had
offshore trust as it seeks to meet the demands of the power to appoint a protector, where no protector had
international finance. Protectors are increasingly been appointed under the trust deed. It was held that a
appointed by many settlors as there are relatively fewer protector (unlike a trustee) is not a creature of equity. His
restrictions under statutes. existence and powers are solely based on the written trust
instruments (or legislation), and in that regard the office is
Nature of a protector a ‘pure construction’ of the trust deed. It was further held
the sui juris beneficiaries had the power to appoint a
Not all offshore jurisdictions have specific legislation protector, and that the protector could exercise his
defining the office and powers of protectors. In the BVI, fiduciary power only for the benefits of the beneficiaries.
the powers and strict duties of trustee may be reserved or
granted to a protector. There is currently no statute in the It should be noted however that if the powers of a
Cayman Islands which clearly defines a protector. protector are too wide, it may jeopardise the trust if the
Court considers the settlor has retained too much control.
The role of a protector was helpfully defined in Steele v A delicate balance is therefore required to effectively
Paz [1993-95] MLR 426 (Isle of Man): “a person… with achieve a settlor’s goals.
power to scrutinise and veto proposed decisions of the
trustee… to ensure that the settlor’s wishes would be Functions of a protector
given proper consideration without jeopardising his fiscal
objectives. Such a person would not be a (professional) A protector counterbalances the wide discretionary and
trustee and…would be independent of the settlor who fiduciary powers conferred on a trustee. For example, the
could not, therefore, be said to have retained any control consent of the protector may be required before the
over the trust funds.” trustee can exercise certain powers under the trust
instrument.
Appointment of a protector
Powers of a protector
One fundamental reason for the appointment of a
protector is for the settlor (and beneficiaries) to retain The powers of a protector as set out in s86(2)(a) of the
indirect power if they have concerns regarding the extent Trustee Ordinance 1993 (as amended in 2003) (BVI) may
of the trustee's discretion, since a protector is usually a include:
close friend or relative of the settlor.
appointing, removing and replacing trustees if the
protector is dissatisfied with their performance;
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vetoing trustee decisions; changing the forum of administration of the trust and
the governing law of trust;
including and excluding beneficiaries from the trust;
terminating the trust under certain defined conditions;
withholding consent from specified actions of trustees
either conditionally or unconditionally; amending the trust for any valid purpose, such as to
respond to changes in tax law; and
advising the trustees and giving directions; and
altering the beneficial interests in the trust, such as to
modifying the trust as time goes on, if the list of add or remove beneficiaries.
beneficiaries can be passed on for generations.
Although there is no equivalent statutory provision in the
Other powers may include: Cayman Islands, the same powers may be available to a
protector of a Cayman Trust, if such intention is expressly
changing the situs of the trust; stated in the trust deed.
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1006
FINANCIAL CRIME IN
THE CAYMAN
ISLANDS: Record-
keeping and disclosure
obligations of trustees
The Trusts (Amendment) (No. 2) Law, 2019 (Amendment Law) introduced statutory obligations
on trustees to maintain and keep up to date certain trust records and to provide trust information to
Cayman Islands’ authorities charged with combatting money laundering and terrorism financing in
certain circumstances.
The Amendment Law amends the Trusts Law (2018 The Amendment Law largely codifies the common law
Revision) (Trusts Law) to, among other things: position and reflects the existing best practice for trustees
of Cayman Islands trusts. Trustees based in the Cayman
introduce record-keeping obligations for trustees of all Islands are already subject to such record-keeping
Cayman Islands trusts; requirements.
empower Cayman Islands’ authorities charged with Trustees’ record-keeping obligations
combatting money laundering and terrorism financing
to require trustees to provide information about On 16 August 2019, the Cabinet published the Trusts
Cayman Islands trusts in certain circumstances; and (Transparency) Regulations (Regulations), which
prescribe the precise information that trustees are required
empower the Cabinet of the Cayman Islands to keep and also confirm that such information must be
Government to make regulations to give effect to the kept for a period of five years from the date on which the
purposes of the Trusts Law. trustee ceases to be the trustee of the relevant trust.
Prior to the Amendment Law, the record-keeping The Regulations provide that trustees are required to keep
obligations of trustees of Cayman Islands trusts arose and maintain, in relation to each Cayman Islands trust for
from the trustee’s common law duties and the laws or which they are a trustee, current copies of the trust deed
regulations of the jurisdiction from which the trustee or other documents recording:
administered the trust.
the terms of the trust;
The Amendment Law follows a recommendation by the
Caribbean Financial Action Task Force in its Mutual the names and addresses of each of the trustee,
Evaluation Report of the Cayman Islands for 2019 that the settlor, any contributor to the trust, any specifically
Government of the Cayman Islands ensure that named beneficiary, any identifiable class of
appropriate transparency measures are in place to prevent beneficiary, any protector, and any enforcer; and
the misuse of trusts that are administered by foreign or
non-professional trustees. any deed or other document varying the terms of the
trust.
harneys.com
11The Regulations confirm that a trustee who fails to comply Cayman Islands’ authorities established under the
with these record-keeping obligations without reasonable financial crime prevention laws listed above, together with
excuse commits an offence that attracts a fine of the Financial Crimes Unit of the Royal Cayman Islands
CI$5,000. Police Service, may make a written request of the
Registrar to provide any information held by the Registrar
A trustee must also keep and maintain accounting records that is required for the purpose of discharging any function
relating to a Cayman Islands trust and an accurate record or exercising any power under these laws.
of the identity and particulars of:
The Registrar must comply with such a request within 48
any service provider (including any investment hours. The information provided by the Registrar may only
adviser, manager, accountant or tax adviser); and be used for the purpose for which it was provided, must
only be retained for as long as necessary to carry out the
the person exercising ultimate effective control of the purpose for which it was provided, and must not be
trust. disclosed for any other purpose, without the prior consent
of the Registrar.
These record-keeping obligations are imposed on trustees
of all Cayman Islands trusts, irrespective of the trustee’s The Trusts (Amendment) Law 2019
location.
For information about the Trusts (Amendment) Law, 2019,
Obligation to provide information to which also amended the Trusts Law, see our Legal Guide:
authorities Amendments to the Cayman Islands Trusts Law.
Cayman Islands’ authorities charged with combatting
money laundering and terrorism financing may direct a
trustee or any other person exercising ultimate effective
control over a Cayman Islands trust to provide information
about the trust or its activities to the authority if the
authority has reasonable grounds to believe that the
trustee or controlling person is acting, or carrying on a
business, in contravention of financial crime prevention
laws enacted in the Cayman Islands.
The relevant financial crime prevention laws are:
the Anti-Corruption Law (2019 Revision);
the Monetary Authority Law (2018 Revision);
the Proceeds of Crime Law (2019 Revision); and
the Tax Information Authority Law (2017 Revision).
The Regulations confirm that a trustee is expected to
maintain trust records in such a manner that will enable
the trustee to comply with a direction from a relevant
authority within 48 hours.
A person who knowingly fails to comply with a direction to
provide information commits an offence that attracts a fine
of up to CI$50,000 plus CI$10,000 per day (up to
CI$50,000) for each day or part of a day that the person’s
failure to comply is ongoing.
Information sharing by the Registrar of
Trusts
In the Cayman Islands, trusts are not required to be
registered with the Registrar of Trusts (Registrar). If a
trust is voluntarily registered, however, the trustee must
provide certain information about the trust to the Registrar.
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1207
Keeping it in The
Family: BVI Private
Trust Companies and
their Increasing
Popularity in Asia
Introduction
In 2007 the BVI Financial Services (Exemptions) it must contain an express statement in its MAA that it
Amendment Regulations (the Regulations) established is a PTC;
the BVI as a modern and sophisticated jurisdiction in
which to incorporate a private trust company (PTC). it must end with the designation “PTC” placed before
the corporate suffix (ie Ltd, Corp, Inc, etc).
General Characteristics, Requirements and Additionally, the name cannot include "trust",
Restrictions of a PTC "trustee", "trust company" or “fiduciary"; and
The characteristics of a PTC in the BVI are similar to those the registered agent must be a licensed BVI Trust
of a standard BVI Business Company which, in some company holding a Class I Trust License.
cases makes it a more popular choice as opposed to
those found in other jurisdictions. Some of the In addition, a PTC is not permitted to do any of the
characteristics of a PTC in the BVI are as follows: following:
no minimum authorised or issued share capital solicit trust business from members of the public;
requirement;
conduct any business which is not “trust business”;
no approval requirements by the BVI Regulator prior
to incorporation; carry on trust business without a licence except for:
no requirement for an auditor to be appointed; a) Unremunerated Trust Business, which means:
it must have at least one director but there is no (i) payments made to the PTC are only in respect
requirement that any of the directors reside in the BVI; of costs and expenses incurred in acting as
and trustee, protector or administrator of the
relevant trust or settlement, the PTC is not
the Memorandum & Articles of Association (MAA) are permitted to make a profit;
the only records of the PTC available for inspection by
the public. (ii) only professional directors are remunerated for
providing director services and must not be
The general requirements of a PTC are: connected to the PTC, may it be by share-
ownership or otherwise;
it must be a BVI company limited by shares or
guarantee; (iii) no person associated with the PTC is
remunerated.
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13b) Related Trust Business, which means: directors through what are known as “Office of Director
Rules”.
(i) the relevant trust or settlement is exclusively
charitable; and Advantages and Disadvantages of a PTC
(ii) all the beneficiaries of the trust or settlement A few advantages and reasons why PTCs have been
are connected to the settlor, or are otherwise popular in Asia and in the rest of the world are that:
charities.
They follow the same framework and share the same
Registered Agent Requirements key features as a standard BVI Business Company,
making them relatively easy to understand and
A PTC must have a licensed Registered Agent who holds maintain.
a Class I Trust License.
A PTC provides confidentially. There are entirely
The Registered Agent is required to satisfy itself that the legitimate reasons for confidentiality when
PTC is meeting the requirements of the Regulations both establishing BVI trust structures. The BVI offers well-
on its formation and on an on-going basis. If the regulated and sophisticated company and trust
Registered Agent forms the opinion that the PTC is not in legislation, making it a preferred choice for a PTC
compliance with the statutory requirements governing jurisdiction.
PTCs, it is then required to report such non-compliance to
the BVI Financial Services Commission. It often happens that both independent and banking
trustees do not wish to act as trustee for a trust
The Registered Agent is required to ensure that up- to- holding certain assets, due to the risk linked to the
date copies of the following records are kept at its offices assets or perhaps due to the lack of knowledge with
in the BVI in relation to each PTC for which it acts as regards to an operating business. PTC’s have
Registered Agent: become a solution more often proposed by
independent trustees. This will most likely increase as
The trust deed or any document creating or independent trustees become more risk–averse.
evidencing the trust as well as any deed or document
varying its terms; and For some high net-worth families it is more practical to
set up more than one trust, maybe to hold different
The documentation on which the Registered Agent assets for different beneficiaries and their
has relied to satisfy itself that the PTC has not descendants or for the purpose of keeping certain
solicited trust business from the public, and is only classes of assets separate from one another, allowing
carrying on “Unremunerated Trust Business” or for additional asset protection. Using an independent
“Related Trust Business”. trustee could push the costs and fees to maintain
these large bespoke structures beyond the point
Succession Planning for the PTC where the structure is economically beneficial.
Trustee fees are a constant concern with families
Setting up a PTC structure can provide high net-worth looking to set up trust structures. A PTC reduces
families with a bespoke succession structure for trustee fees dramatically.
generations to come. The PTC may act as a trustee for
multiple trusts holding different classes of assets, and Setting up a PTC allows settlors or their trusted
each trust could cater for a different class of beneficiaries. advisors or family members to exercise a degree of
control over the decisions made by the PTC. By
Consideration should be given to the shares of the PTC, if sitting on the board of directors of the PTC the family
it is not limited by guarantee. If the shares are owned by can make decisions as and when required, and these
an individual outright, then on the death of the individual decisions can be made expeditiously without having
shareholder a grant of probate or a grant of letters of to wait for an independent trustee to deliberate on a
administration must be obtained in the BVI in order to decision. In Asia, using a trustee in a different time
realise the shares. zone can cause practical and administrative issues as
well as untimely delays especially when swift decision
A popular structure mechanism is for the PTC shares making is crucial for the successful day to day
themselves to be held in a BVI purpose trust, in some operation of the business.
cases with VISTA provisions. This avoids the need to
obtain a grant of probate or a grant of letters of
administration in the BVI which is a costly and time
consuming exercise, especially if the deceased did not BVI Business Companies have always been popular
leave a BVI will. Secondly, if the purpose trust is in Asia and therefore using PTCs gives familiarity and
established within the VISTA regime the settlor can control comfort to individuals. As most individuals are familiar
the appointment, removal and remuneration of the PTC’s
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14with the operation of a company, operating a PTC is nominal, the cost of setting up a PTC structure is
consequently not difficult. If families or individuals are expensive in the first year. PTCs are generally set up
not comfortable in running a PTC then it is always by high net-worth families and individuals, and
possible to engage the services of a professional therefore careful consideration must be given when
service provider to assist with the maintenance of the choosing to use a PTC as in some cases the initial
PTC and in some cases assist with the various administrative costs of the PTC may outweigh the
administrative tasks. advantages of the structure.
There are, on the other hand, some potential drawbacks to Conclusion
consider before setting up a PTC:
In appropriate circumstances, PTCs are an extremely
It is important that a PTC is not simply viewed as a effective element of a BVI trust structure. Looking towards
‘family friendly’ trustee. The office of trustee remains a the future as well as at current trends, it appears that their
fiduciary one and consequently the trustee is required popularity will continue to grow in the years to come. Asian
to discharge its duties to the necessary standard of families increasingly understand the role that trusts play in
care irrespective of whether it is a PTC or a corporate the protection and security of family wealth. With many
trustee. It is therefore crucial that PTCs conduct their high net-worth families owning assets globally, finding a
business in a proper fashion and administer the trust succession structure that will protect such assets is very
to the standard of care required of them. Failure to do important. BVI PTC structures provide a safe and reliable
so may open the door to breach of trust claims by structure to achieve this.
beneficiaries of the trust;
Although the ongoing costs associated with PTCs are
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1508
Keep Calm: Normal
Service Resumed!
ANTI-BARTLETT WINS THE DAY!
Many of you will be familiar with the background saga of Wise Lords had suffered huge losses resulting from
the Zhang Hong Li v DBS Bank and others which went investments instigated by its investment advisor (who was
before the Hong Kong Courts in 2017 and 2018. also one of the settlors of the trust). The advisor’s
investment decisions were submitted for approval and
In November 2019, the matter came back before the Hong ultimately approved (retrospectively on many if not all
Kong Court of Final Appeal (HKCFA) (Zhang Hong Li occasions) by DBS Trustee. In essence, the litigation
and others v DBS Bank(Hong Kong) Limited and others concerned the culpability of, amongst others, DBS Trustee
[2019] HKCFA 45) on appeal by DBS. and DHJ Management for the investment losses suffered
by Wise Lords and, ultimately, the trust.
The appeal centered on:
The decision is welcome news for trustees since it
‘duty (if any) of a trustee to supervise the investment confirms the effectiveness of ‘anti-Bartlett’ provisions,
decision making of an investment advisor appointed which generally seek to relieve a trustee from any duty to
by the underlying company and/or to review interfere with or supervise the business of the trust’s
investment decisions made by such investment underlying company, unless the trustee has actual
adviser where the terms of the trust contain knowledge of dishonesty in the conduct of the business.
extensive and mandatory ‘anti-Bartlett’ provisions Such clauses are commonplace where the settlor of a
which expressly forbid the trustee’s interference with trust or the settlor’s nominee has control over the
the management of the company save where it has management of the trust’s underlying company.
actual knowledge of dishonesty and if so, what is the
nature and extent of such a duty’. One of the judges sitting in the Court was Lord Neuberger,
the former President of the Supreme Court of the United
To the relief of many trustees, on 22 November 2019, the Kingdom. The case is therefore likely to carry some weight
HKCFA held that neither the trustee (DBS Trustees HK in most common law trust jurisdictions. Further, as the first
(Jersey) Limited) nor the corporate director (DHJ final appellate judgment considering ‘anti-Bartlett’ clauses
Management) of the trust’s underlying company (Wise it provides a welcomed evolution of and clarity in the law
Lords) had a “high level supervisory duty” to monitor Wise on trustee’s duties and provides reassurance that trustees
Lord’s investment decisions. Further, the HKCFA held that should not be exposed to unanticipated risks of liability in
there had not in any event been a breach of any such duty relation to duties they did not bargain for.
by DBS Trustees or DHJ Management.
harneys.com 1609 Safeguarding
Trustees’
Interests
Late last year judgment was handed down by the England Trustees had made each of the purported loans in breach
and Wales High Court of Justice in Sofer v of a clause in the Trust deed which said that the trustee
SwissIndependent Trustees SA [2019] EWHC 2071 must not pay, convey or transfer any part of the corpus of
(Ch) striking out a claim for US$20 million against a the Trust to any beneficiary prior to the date of death of Mr
professional trustee. Sofer.
The reason the judgment is of particular interest is After considering the leading decisions on exoneration
because is also contained important guidance on clauses and the legal definition of dishonesty, His Honour
exoneration clauses and the test to overcome such a Judge Paul Matthews held that to overcome an
clause. exoneration clause a claimant’s statement of case must
show that the trustee:
By way of a brief summary, in 2006 Mr Hyman Sofer
settled the Puyol Trust (the Trust). The beneficiaries were a) committed a deliberate breach of trust (that is, knew it
Mr Sofer and members of his family including his son, was committing a breach of trust), and
Robert (the Claimant). The trustee of the trust was
SwissIndependent Trustees SA (the Trustees), a b) either knew, or was recklessly indifferent as to
professional trustee firm based in Geneva, Switzerland. whether, it was contrary to the interests of the
beneficiaries, or believed it to be in the interests of the
Commencing shortly after the Trust’s creation, the beneficiaries, but so unreasonably that no reasonable
Trustees made significant payments out of the Trust to Mr professional trustee could have so believed.
Sofer at his request. The payments were recorded as
interest free and non-recourse loans, repayable on In this instance the Judge found that the Claimant’s
demand. They were made pursuant to an express power statement of case fell short of the above requirements and
to lend trust assets to any beneficiary on such terms as therefore ordered for the claim to be struck out.
the trustee may in its absolute discretion think fit.
Comment: Albeit trustees can take some comfort from
Fast forward six years and the Trustees made a further this case it is also a timely reminder that they need to look
significant payment to Mr Sofer, again at his request. The very closely and consider carefully the terms of payments
Trustees exercised their discretion to do so after all the or loans made to beneficiaries to ensure they are in line
beneficiaries of the Trust had signed a deed indemnifying with the terms of the trust documentation. Further, trustees
the Trustees from all claims arising out of the existing should ensure that an exoneration clause is sufficiently
loans and the new loan to Mr Sofer. drafted or reviewed by trust counsel.
When Mr Sofer passed away in 2016 his estate was
unable to repay the debt due and owing to the Trust.
In 2018, the Claimant commenced proceedings against
the Trustees for recovery of all loans which had been
made to his late father out of the Trust. He claimed the
harneys.com
1710 What are
the ‘Limits’
of a Trustee’s
Indemnity?
At the end of 2019, the English Court of Appeal provided The Court of Appeal found that, whilst the taking of an
helpful guidance on the limits of a trustee’s right to be account in common form does not presuppose that there
indemnified out of the trust fund for its legal costs in has been misconduct on the part of the trustee, in this
litigation concerning the trust. The decision will be of case the account revealed serious misconduct and
interest to trustees in offshore jurisdictions, such as the breaches of trust. The Court of Appeal further found that
BVI, where the statutory rules concerning a trustee’s right the trustee had been acting on its own behalf in defending
to indemnification are similar to those in England and the proceedings and that it would offend all sense of
Wales. justice in allowing the trustee to an indemnity from the
trust fund.
In Price v Saundry and another [2019] EWCA Civ
2261, the claimant was a trust beneficiary and had filed Comment: It is our opinion that the decision in this case is
proceedings seeking to remove the trustees, one of whom indicative of the limitations that may be applied to trustee
was the first defendant. indemnities in offshore jurisdictions, such as the BVI,
particularly where the legislation provides similar rights to
The beneficiary alleged that various payments authorised trustees to be indemnified from the trust assets (section
by the trustee were improper and amounted to a breach of 31(2) of BVI Trustee Ordinance 1961 replicates the
trust. wording of the predecessor to section 31(1) of the English
Trustee Act 2000).
The parties to the claim agreed to dispense with the claim
to remove the trustees provided that the trustee would
produce a final account of the capital and income of the
trust and the dealings with it.
Following the account, the Court at first instance found
that the trustee was liable to pay sums exceeding £50,000
to the trust. However, it also allowed the trustee to be
indemnified from the trust fund for the costs of defending
the proceedings as the court had not found the trustee to
be guilty of any breach of trust. The claimant appealed.
The Court of Appeal reversed the decision.
Having regard to section 31(1) of the Trustee Act 2000,
the Court of Appeal found that the trustee was not entitled
to be reimbursed from the trust fund because its legal
expenses had not been properly incurred when acting on
behalf of the trust.
harneys.com
1811 The Court’s
inherent
jurisdiction to
remove Trustees?
Nothing
Exceptional!
In its 10 December 2019 decision, the English High Court The Court was careful not to conflate the issues of
considered the Court’s power to remove a trustee under whether (1) the defendant should be removed as a
the Trustee Act 1925 and its inherent jurisdiction in trustee, and (2) if it were to be removed, should it be
London Capital & Finance Plc (In Administration) v replaced and by whom. The Court was in no doubt that the
Global Security Trustees Ltd [2019] EWHC 3339 (Ch). defendant should be removed as security trustee, but
ordered the claimant to provide further evidence as to
The Court held the jurisdiction to remove a trustee under possible replacement trustees including indications of the
its inherent jurisdiction does not have an initial threshold of associated costs of doing so. The Court was keen to make
exceptionality and there is no requirement, beyond that the point that any replacement trustee having doubts
which is normal, for a strong case to be made out. In this about its role, and its utility, should apply to the Court for
respect, the Court took issue with a passage in Lewin on directions.
Trusts that suggested the Court’s inherent jurisdiction only
arises in exceptional cases. While it is more common for Comment: This case serves as a judicious reminder of
the power under section 41 of the Trustee Act 1925 to be the importance of single-minded loyalty and the necessity
exercised, the Court held it does not follow that anything to avoid a position where the fiduciary’s duty and interest
other than the standard test should be applied to the less may conflict.
common route under the inherent jurisdiction. The
beneficiaries’ welfare and best interests are infallible
guides to both whether the power needs to be exercised
and, if it does, how it is to be exercised.
The Court ordered the removal of the defendant as
security trustee in relation to secured bonds marketed by
the claimant administrators having regard to, inter alia, its
conflicts of interest and the wishes of the beneficiary bond
holders. The defendant’s only business was acting as the
security trustee and its ability to perform that role
depended upon the qualities of its directors and
shareholders. The Court further held that there had been a
failure on the part of the directors of the defendant to
appreciate the importance of ensuring that they and the
defendant were not tainted by association with the
claimant, and its directors, who borrowed money from the
claimant.
harneys.com
1912 “I would have acted
lawfully, had I not
acted unlawfully” –
a means to escape
equitable
compensation?
In Auden McKenzie (Pharma Division) Ltd v Patel The Court of Appeal concluded that this was a developing
[2019] EWCA Civ 2291, the English Court of Appeal area of law and that much fuller submissions would be
considered an important issue regarding equitable required than that normally appropriate on a summary
compensation: “whether a defaulting trustee or other judgment application. At trial, the Court would have to
fiduciary can resist a claim for compensation for loss consider the extent to which the liability of a defaulting
caused by his default on the basis that had he not done trustee (or company director) to make full restoration to
what he did improperly, he would have achieved the same the assets improperly depleted by him, may be relaxed by
result properly, so that the position of the trust or other having regard to the position that the trust (or company)
person to whom fiduciary duties were owed, would have would have been in had there been no breach of duty –
been the same”. that position being assessed as at the date of trial, not the
date of the breach of duty.
Here the defendant director of the claimant company
operated a scheme whereby the company made Comment: Whilst it may be true that the company
payments against false invoices, with the money ultimately suffered no loss compared to the position it would have
landing with the director and his sister (the beneficial been in had the director acted lawfully, it remains to be
owners of the company). The purpose was to evade the seen whether the Court will deter fiduciaries from
tax that would have been payable by him and his sister if breaching their duties by granting compensation to the
the company had made lawful distributions to them. company if in doing so put the company in a better
position than it would have been in had the fiduciary acted
The director appealed against the first instance grant of properly (which would be analogous to awarding damages
summary judgment for compensation in the amount of the on a restitutionary basis, rather than a compensatory
improper payments. basis).
The issue on appeal was whether the director had a real Perhaps the more obvious potential liability arising out of
prospect of successfully defending the case on the the directors’ actions is in relation to non-payment of tax. It
assumed fact that he would have procured the payments is therefore worth noting that the director reached an
to be made lawfully by way of dividends (or by some other earlier settlement with HMRC for, inter alia, income and
lawful means), had he not done so unlawfully, meaning corporation tax that would have been due had the
the company suffered no loss as it would have been in the payments been made properly.
same position.
In allowing the appeal, the Court of Appeal – while far from
holding that the director will succeed even if he
establishes the facts on which he relies – was not
prepared to hold that there was no sufficient prospect of
the director successfully challenging the amount of
damages claimed by the company.
harneys.com
2013 The Rationality Test!
In Airways Pension Scheme Trustee Ltd v (1) Fielder withhold approval merely because it would have exercised
(2) British Airways PLC [2019] EWHC 3032 (Ch) the the power in a different manner.
claimant trustee applied to the English High Court of
Justice for approval of its decision to enter into a Counsel for the representative beneficiary submitted,
settlement agreement with the second defendant, British however, that in a case where the Court has previously
Airways plc (BA). made an order permitting the trust fund to be expended on
the litigation, a more nuanced approached is necessary.
The settlement agreement compromised litigation that had That is, the Court must reach its own determination as to
been ongoing since 2013 and was reached pending the whether the settlement agreement as a whole is in the
trustee’s appeal to the Supreme Court in that litigation. best interests of the Scheme.
The trustee had previously sought and obtained Beddoe Mr Justice Zacaroli rejected the representative
relief to pursue the Supreme Court appeal because BA beneficiary’s submission, determining that the correct
refused to accept liability under the indemnity contained in approach was to apply the rationality test. His Lordship
the deed and rules for the Airways Pension Scheme for accepted that the fact that the Court has previously made
the trustee’s costs of the appeal. such an order is relevant background to consider in
assessing the rationality of the trustee’s decision to enter
The issue to be determined was the test to be applied by into the settlement agreement, but does not require the
the Court when considering whether to approve the Court to take a different approach.
trustee’s decision to enter into the settlement agreement.
Counsel for the trustee (supported by counsel for BA)
submitted that the test to be applied was that applicable to
the second category of the case set out in Public Trustee
v Cooper [2001] WTLR 901. The second category is a
case where the Court is asked to consider whether a
proposed course of action is a proper exercise of the
trustees’ powers where there is no real doubt as to the
nature of the trustee’s powers and the trustee has decided
how it wishes to exercise its powers but because the
decision is particularly momentous, the trustee has sought
the Court’s blessing of its proposed course of action.
In such a case, the test to be applied is whether the
trustee’s decision is one that a reasonable body of
trustees could arrive at. Following Re MF Global UK Ltd
[2014] EWHC 2222 (Ch), the Court is concerned only with
limits of rationality and honesty – the Court does not
harneys.com
2114
What is Sufficient
Evidence of the
Knowledge and
Approval of a Testator?
In a recent decision of the High Court of England and that the Deceased had a sufficiently high level of English
Wales, Mr Justice Hodge considered the requirements for to have conversed with his solicitors in drafting the Will;
sufficient evidence proving the knowledge and approval of give instructions; and understand the Will when it was
a testator in executing their Will, where the Deceased read to him, and that on execution it would form a binding
testator was both illiterate and had a low level of English. legal document. The Judge therefore pronounced the
validity of the Will and dismissed the claim.
In Kassim and others v Saeed [2019] EWHC 2763 (Ch),
the Deceased was a Yemeni national domiciled in Comment: For practitioners drafting English language
England and Wales. Probate had been granted over the Cayman Islands or BVI wills for clients where English is
Will, which was written in English and was in fairly simple not their first language and/or the standard of English is
terms. It appointed the Defendant, the Deceased’s third low, it is advisable to adhere to best practices and require
wife, as sole executrix and principal beneficiary the testator to paraphrase the will before execution, to
thereunder, but excluded the earlier children and wives of ensure that the necessary standard of knowledge and
the Deceased. approval is met.
Proceedings were brought to challenge the validity of the
Will on the basis that the Deceased lacked the required
level of knowledge and approval of the Will on execution.
On considering the relevant test, His Honour Judge Hodge
QC confirmed that the burden rested with the propounder
of the Will, on the balance of probabilities, to prove
whether “the contents of the will were brought home to the
deceased”.
Evidence of knowledge and approval can take any form
but the Court must be satisfied that the testator
understood what was in the will at the time of execution,
what its effect would be, and that it was in accordance with
his wishes.
The Judge held that in circumstances of illiteracy and low
standards of English, best practice is for the testator to be
asked to paraphrase the terms of the will before execution,
in order to avoid the mere illusion that communication and
understanding as taken place.
The Judge stopped short of requiring paraphrasing in
these circumstances. He was satisfied on the evidence
harneys.com
2215 Where There’s A Will,
There’s A Way!
In Barnaby v Johnson [2019] EWHC 3344 (Ch), an credible evidence to cast doubt on her mother’s
aggrieved daughter unsuccessfully challenged the validity testamentary capacity in 2005.
of her mother’s Will on the bases of testamentary capacity,
undue influence, forgery of the testatrix’s signature, and The Court found that the 2005 Will was rational, had been
the testatrix’s want of knowledge and approval of the read by the drafting solicitor to the deceased, who had
terms of the Will. testamentary capacity at the time, and it had been
properly executed. With no documentary or independent
Mr Barnaby, the surviving son of the testatrix, brought the evidence, Miss Johnson came nowhere near establishing
claim to propound his mother’s 2005 Will. Under the 2005 her claims. Her own evidence was held to be
Will, he was to be the residuary beneficiary and was co- “contradictory, self-serving and deliberately misleading”.
executor. Miss Johnson, his surviving sister who was only
to receive a nominal pecuniary legacy, disputed the Will’s As an aside, the Court commended one solicitor’s file as
validity on all of the above grounds. an exemplar of a properly maintained file, with dated,
detailed attendance notes, and matter opening and closing
The Court confirmed that the burden of proof in relation to sheets. He noted such files help avoid some of the
testamentary capacity starts with the propounder, but it will disputes that arise in probate claims and, as in this case,
presume capacity where the Will is duly executed and can give the Court confidence in the evidence and
appears rational on its face. The evidential burden will professional abilities of the witnesses.
then shift to the objector, and if a real doubt is raised, the
evidential burden returns to the propounder.
The Court also referred to the presumption in favour of
due execution of a Will. Evidence that the witnesses have
no recollection of having witnessed the deceased’s sign
will not be enough to rebut that presumption. Thus it did
not matter that one of the witnesses to the Will (a solicitor
at the firm that prepared the Will) could not specifically
recall seeing the deceased sign, but confirmed it was her
own signature in the attestation and that her practice was
never to witness a Will if the testator or testatrix had not
signed it.
With the independent witnesses’ evidence supporting the
presumption of testamentary capacity and the Will having
been validly executed, the burden then fell back to Miss
Johnson. The Court held Miss Johnson adduced no
harneys.com
2316 LUNCH AND LEARN
Our Trusts & Private Client Advisory Group is committed The BVI and Cayman Islands Courts’ approach to
to sharing its expert knowledge of offshore law with our trusts and shareholder disputes
valued clients and friends. We would be pleased to
conduct a seminar or presentation for you on a topic that BVI Wills & Succession Planning
you would find useful. We have a wide range of
presentations, set out below, that we can deliver. Consequences of client holding BVI shares without
Alternatively, if there is another topic that you would like us planning
to cover, please get in touch with our business
development team: BDTeam@harneys.com. BVI solutions – BVI wills and probate procedures
Trusts BVI solutions – Joint tenancy
General uses of BVI Trusts BVI Solutions – Share Trusts
BVI VISTA Trusts BVI Solutions – Reserve Directors
BVI Reserved Powers Trusts Other
BVI Private Trust Company Structures Cayman Islands Foundation Companies
BVI Share Trusts Directors duties
BVI Charitable Trusts International Sanctions - how to manage the risk
BVI Purpose Trusts Using asset tracing and judicial assistance tools in
support of foreign divorce proceedings
General uses of Cayman Trusts
Cayman STAR Trusts
Cayman Reserve Powers Trusts
Cayman Charitable Trusts
Trustees’ duties and liabilities
Trustees’ indemnities
Trust Update – developments over the last 12 months
Developments in the law of breach of trust
My trust is better than your trust – comparison of
trusts
Insolvent trusts
Remedies for trustees
Trusts and divorce
harneys.com
2417
STAR Guest:
Meet a member of
the Trusts and
Private Client
Advisory Group
Five buzzfeed facts you may not know
about Henno
Henno had some rather exotic pets growing up in
South Africa, including an eagle-owl, monitor
lizard, African rock python, caracal cat and vervet
monkey.
Although native Afrikaans speaking, Henno can
also speak Zulu!
In an attempt to conquer his fear of heights,
Henno bungee jumped off one of the world’s
For those who may not already know our Singapore star
highest commercial bridge at 216 metres (709 ft)
trust adviser, we would like to introduce you to Henno
above the Bloukrans River… It did not work!
Boshoff.
However, it did result in a very entertaining video.
Henno specialises in advising institutional trustees,
Henno was destined to become a fourth-
wealthy families and private individuals on BVI and
generation farmer in South Africa. However fate
Cayman Islands law aspects of trust and private client
intervened and instead he became a fantastic trust
transactions.
and private client lawyer.
He is regularly engaged to advise on the setup and
In his spare time Henno is a self-proclaimed
restructuring of BVI and Cayman Islands Trusts, including
crypto fanatic.
but not limited to VISTA, STAR, purpose trusts, share
trusts, charitable trusts and Cayman Islands foundation
companies, as well as PTC’s, wills and general
succession and private wealth planning structures.
Henno also acts as voluntary liquidator for BVI and
Cayman Islands structures used in private wealth
structures.
Henno has worked in the Isle of Man, the BVI, South
Africa and Singapore giving him with important exposure
to global cross-border estate.
harneys.com
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