The concept of trusts

As an offshore jurisdiction, the concept of trusts is not only well recognised but central to Bermuda’s commercial appeal as an international financial centre. Bermuda trust law is based on English common law trusts and remains heavily influenced by English case law, however, the law has been enhanced in certain areas by local legislation. Significantly, like many offshore jurisdictions, Bermuda has enacted firewall legislation designed to ensure that any trust governed by Bermuda law will be insulated against rights and claims conferred by foreign law, including claims on divorce. These provisions have been strengthened significantly by the recently enacted Trusts (Special Provisions) Amendment 2020 (TSPA). The most significant provisions are as follows:

• section 9 provides that the Bermuda court shall have exclusive jurisdiction to adjudicate claims concerning the validity, construction, effects or administration of a Bermuda trust; 
• section 10(3) excludes the application of foreign law to Bermuda trusts; and
• section 11 which prevents the enforcement or recognition of any foreign judgment in conflict with the firewall provisions. 

The legislation is significant in the context of matrimonial proceedings as it precludes enforcement of any foreign orders which affect a Bermuda trust, whether directly or indirectly. It should be noted that the TSPA defines a Bermuda trust broadly as a trust with a “Bermuda connection” and does not require either the settlor or trustees to be resident in Bermuda. The legislation therefore confers jurisdiction to make orders with extraterritorial effect.

General approach to trusts on divorce

Bermuda’s matrimonial law similarly derives from UK law and the primary legislation (the Matrimonial Causes Act 1974 (MCA)) mirrors UK legislation of the same name. Although later amendments to the UK legislation have not been fully adopted locally (save for the 2023 implementation of the Matrimonial Causes (Faultless Divorce) Amendment Act 2022), UK case law remains instructive particularly with regards to the approach to fairness and the pursuit of a clean break (notwithstanding the absence of a power to order a clean break in Bermuda).

The MCA provides jurisdiction to grant a decree of divorce and consequently make orders for financial relief provided the parties fulfil the statutory domicile or resident requirements set out in section 2 of the MCA. The court’s powers may also be exercised following a foreign divorce provided that the divorce is recognised, although orders will be limited to interests and assets situated in Bermuda pursuant to section 9 of the Recognition of Divorces and Legal Separations Act 1977.

As in the UK, on any application for financial remedies, the court has a statutory duty to consider all financial resources which are, or are likely to be, available to each party in the foreseeable future, including those held in trust. Section 28 of the MCA provides the court with a broad discretionary power to vary nuptial settlements for the benefit of divorcing spouses. Alternatively, where the court is satisfied that distributions will continue to be made for the benefit of one spouse from a non-nuptial settlement, orders may be made against matrimonial property in the expectation that this will be offset by future trust distributions to the other spouse. It is possible for these orders to carry extraterritorial effect with regard to a trust governed by Bermuda law, thanks to the firewall provisions which confer exclusive jurisdiction of Bermuda trusts to the Bermuda court. However, where a trust is governed by the law of another jurisdiction, it is unlikely that the court would make orders as against either the trust or the trustees. Although the court’s jurisdiction to make financial orders could be regarded as extending to trustees and/or trusts held offshore and governed by the law of another jurisdiction, in practice it is unlikely that these orders would be enforceable in the relevant jurisdiction and it is well-accepted that the court ought not to make orders that are incapable of enforcement. Therefore, in practice, financial orders tend to be limited in their reach to spouses, Bermuda trusts, and assets physically within the jurisdiction. 

Divorce in a foreign jurisdiction

As a result of Bermuda’s firewall provisions (see above) foreign orders purporting to vary a Bermuda trust on divorce will fall foul of the firewall provisions and will not be enforced by the local court. Spouses seeking to attack a Bermuda trust on divorce are therefore advised to seek specialist advice regarding the need to obtain orders directly from the Bermuda court.

All parties to divorce proceedings in Bermuda will be subject to a duty of full and frank disclosure and are required to provide disclosure of their assets worldwide, whether they are held legally or beneficially. This duty also extends to any resources which are, or are likely to be, available to a spouse, including trust assets. 

Beneficiary spouses can be required to provide disclosure of any trust documents which are in their possession or which they are entitled to. A spouse cannot be compelled to provide trust documents which they have no entitlement to, however, they can be ordered to make a request for the same. 

Parties are expected to provide disclosure voluntarily. Alternatively the court may order the parties to provide an affidavit of means, or specific disclosure to the extent that it considers this necessary and proportionate. 

A spouse’s failure to comply with the duty of full and frank disclosure may result in cost sanctions or, in extreme cases, a spouse may be held in contempt of court. Where a spouse’s disclosure remains insufficient at trial, it is open to the court to make adverse inferences against them or make findings of financial misconduct and to reflect this in the final distribution of assets awarded.

Where the court is concerned with a Bermuda trust it will have jurisdiction to make and enforce orders for disclosure directly against trustees either by joining the trustees as parties, or, by making orders for third party disclosure. 

In theory, the court may also make an in personam order against the trustee of a foreign trust to provide disclosure. However, given the practical difficulties arising on enforcement, the court is unlikely to do so in practice unless it is satisfied that the order will be recognised overseas or the trustee has submitted to the jurisdiction. In those circumstances, requests ought to be made to the trust’s local court. 

There is no obligation on trustees of a Bermuda trust to comply with foreign orders for disclosure made in contravention of the firewall provisions and enforcement by the court is similarly prohibited.   

Proceedings in Bermuda 

Domestic orders against spouse. It is permissible for the court to make orders against a spouse, in the expectation that further trust distributions will be forthcoming (commonly referred to as Thomas resource cases). However, in line with the UK case law in this area, such orders should only made where it would be reasonable to expect further advances based on previous conduct and care must be taken to avoid applying improper pressure on trustees. 

The court will expect a spouse to comply with its orders, and will deploy enforcement mechanisms against those in breach of orders. However, the court cannot compel a trustee to exercise their discretion in a specific manner and enforcement mechanisms cannot be utilised against the trustees in the face of a spouses’ refusal to comply.

Domestic orders against trusts/trustees. Provided the court is satisfied that it is dealing with a nuptial settlement, it has a broad power to vary the trust and may make orders against trustees or trust assets directly to facilitate this. Trustees will be expected to comply with such orders and will face enforcement proceedings in the event that they refuse to do so. As a result of Bermuda’s firewall provisions conferring exclusive jurisdiction over Bermuda trusts, these orders may have extraterritorial effect, though in practice, consideration will need to be given to the issues which may arise on enforcement in a particular jurisdiction.

Foreign proceedings

By contrast, there are no obligations on either spouses or trustees to comply with orders made by foreign courts purporting to effect a Bermuda trust. The firewall provisions prevent the Bermuda court from giving effect to foreign judgments in breach of these provisions and compliance by Trustees would be a breach of their duties under domestic law. 

Whilst the firewall provisions are yet to be tested in any reported matrimonial cases it was no doubt intended not only to prevent orders necessitating trust funds to be paid, but also orders which a spouse can only satisfy from their own funds if distributions are forthcoming to meet their own future needs thereafter. 

Where orders against the assets of a Bermuda trust are likely to be necessary, these can and should be sought directly from the Bermuda court.

The court has a number of mechanisms at its disposal to enforce its own orders including an order for the examination of means, delivery of goods, possession and sale of property and garnishee proceedings. Deliberate refusal to comply with an order of the Bermuda court may give to rise to committal proceedings for contempt of court punishable by a fine or imprisonment. Committal proceedings are subject to the criminal standard of proof (beyond a reasonable doubt). 

There is a limited statutory framework for the enforcement of orders originating from foreign courts. English judgments may be registered and enforced pursuant to The Judgments Reciprocal Enforcement Act 1958, provided the order does not stray beyond the jurisdiction of the UK court as recognised by Bermuda (which excludes orders in contravention of the firewall provisions). Maintenance orders are also capable of enforcement where orders emanate from signatories of the Maintenance Orders (Reciprocal Enforcement)(Designation) Order 1975. 

Spouses seeking to enforce foreign orders that fall outside of the above framework will need to bring an action at common law for summary judgment.

Postnuptial agreements were found to be enforceable by the Privy Council (Bermuda’s highest court) in McLeod v. McLeod [2008] UKPC 64. The court ruled that postnuptial agreements would be upheld unless there had been a change in circumstances or the agreement made inadequate provision for a child of the marriage. The decision in Radmacher v. Granatino [2010] UKSC 42 in which the UK Supreme Court held that prenuptial agreements would be given significant weight provided that they had been entered into freely and were found to be fair. Therefore, it is highly likely that prenuptial agreements will also be given significant weight in determining the division of assets on divorce in Bermuda in the future. Whilst decisions of the Supreme Court are not automatically binding in Bermuda, it is highly unlikely to be reversed by the Privy Council and likely to be regarded as highly persuasive. 

It is important to note that neither prenuptial nor postnuptial agreements are strictly binding on the court and it remains impossible for the parties to oust the court’s jurisdiction. However, provided the agreements are found to be fair, the court will respect the autonomy of the parties to regulate their financial affairs. 

The Supreme Court and the UK Law Commission’s Matrimonial Property, Needs and Agreements project (27 February 2014) provided helpful guidance on the conditions which would need to be met in order for an agreement to be upheld, which included the need for the parties to receive legal advice, provide full financial disclosure, and sign the agreement no less than 28 days before the wedding. There have been a number of reported cases where agreements have been upheld despite failing to strictly adhere to the Radmacher conditions in particular, with a shift away from the need for formal advice provided the terms of the agreement were understood and with some agreements being upheld despite failing to meet a party’s needs. It is yet to be seen how rigorously these requirements will be enforced in Bermuda but is anticipated that the UK case law will be followed closely.

-

There is no matrimonial property regime in Bermuda. The court possesses broad discretionary powers to re-distribute property belonging to either party having had regard to their resources, including assets held in trust. It is therefore both possible and advisable for PNAs to address a spouse’s financial claims comprehensively, having provided disclosure (at least in outline) of the assets and resources the court would have regard to, in order for a PNA to be regarded as fair by the court. Failure to do so may leave a PNA vulnerable to attack on the grounds of non-disclosure.

Financial claims relating to children may also be addressed in PNAs and are likely to be upheld by the court, provided the guidelines in Radmacher are observed. Nonetheless, the court will retain the power to make further orders, or vary any existing order, making financial provision for children even where a PNA has been upheld in the first instance, as it is not possible to terminate financial obligations towards a child, even by agreement. 

Family law proceedings are generally heard in private and, to date, there has been seemingly little interest in applications for the media to attend or report on cases without anonymity. 

In the event of a contested application on either issue, the court would need to undertake a balancing exercise between the right to privacy and the need for transparency. It should be noted that the Constitution makes express provision for the exclusion of the public (and by extension the media) from hearings in a range of circumstances including where attendance would prejudice the welfare of a child or parties’ private lives.

Children proceedings

The Children Act 1998 explicitly prevents the attendance of non-parties at hearings without the leave of the court and whilst this provision is not replicated in other primary legislation governing cases concerning children (namely the Minors Act 1950 or the Matrimonial Causes Act 1973) proceedings pursuant to those Acts are usually held in chambers in any event.

The publication of any information relating to proceedings held in camera is prohibited where the court is mainly concerned with questions of a child’s welfare, pursuant to section 10 of the Administration of Justice (Contempt of Court) 1979 Act. It is also an offence under the Children Act to publish any information, including the identity of other parties (such as Trustees), where this would have the effect of identifying a child involved those proceedings. As a result, there is a long-standing practice of anonymising judgments which primarily concern questions of a child’s welfare. 

Financial proceedings

Whilst there is no automatic bar on the identification of parties where the welfare of a child is not the main concern (e.g. where proceedings under the MCA concern financial remedies only), historically many judgments have been anonymised historically for privacy reasons nonetheless and, again, proceedings tend to be held in chambers. 

-