Firewall legislation in the BVI
23 January 2023
Traditionally, establishing trusts in the British Virgin Islands ("BVI") by those from jurisdictions which do not recognise trusts or which have forced heirship rights, was seen as potentially problematic. To remedy this, in March 2004, BVI enacted "firewall provisions", which are presently consolidated in Section 83A of the Trustee Act (2020 Revision) (the "Act"). In order to strengthen these provisions, amendments were later made, which came into effect on 9 July 2021 through the Trustee (Amendment) Act, 2021 (the "Amended Act").
Application of Section 83A
It is important that trustees, settlors, and beneficiaries of BVI trusts should be able to avoid claims or attempts to have the trust set aside or varied by a foreign court applying foreign law principles that clash with BVI trust law. Section 83A of the Act applies to all BVI trusts and all dispositions of property to be held upon the trusts of such BVI trusts.
Determination of proper law
Section 80 of the Act states that the proper law of a trust will be the law of the jurisdiction that is expressly stated by the terms of the trust to be the law that will govern the trust. If the terms of the trust do not expressly state what law will govern the trust, then the law of the jurisdiction that may reasonably be inferred from the terms of the trust will be the governing law. If the terms of the trust do not expressly state the governing law and no reasonable inference can be drawn from the terms of the trust, then the governing law will be the law of the jurisdiction with which the trust at the time it was created had the closest connection.
Matters determined by the proper law
Section 83A (12) as amended in the Amended Act provides that all questions arising in regard to a trust, whether the administration is conducted in the BVI or elsewhere, which include questions relating to:
- the validity of the trust;
- the construction of the trust;
- the effect of the trust; or
- the administration of the trust; and
- matters specified in Article 8 of the Hague Trusts Convention,
are to be determined by the proper law of the trust, and where BVI law applies to the trust or to the issue in question, no other rule of law of any other jurisdiction shall be applicable.
Exclusion of Foreign Law
Section 83A (13) as amended in the Amended Act sets out the "firewall" provisions, which provide that subject to any express provision to the contrary in the trust or disposition, no BVI trust or transfers of property held on trust shall be void, voidable, liable to be set aside, or defective in any way, nor is the capacity of any persons internal to the trust relationship to be questioned, nor is any person internal to the trust relationship or any other person to be exposed to any liability or deprived of any right, claim, or interest on the basis that the law of a foreign jurisdiction does not recognise the trust concept or on the basis of rights conferred by foreign laws by reason of "personal relationships" to the settlor or any beneficiary.
A "personal relationship" is defined in the Act to include not just a relationship by marriage or former marriage but also stepchildren and children born by artificial fertilisation.
Section 83A (14) of the Act provides that:
"Heirship rights conferred by foreign law in relation to the property of a living person shall be disregarded when determining rights of ownership of property subject to, or claimed to be subject to, a Virgin Islands trust".
An heirship right is defined as:
"…any right, claim or interest in, against or to property of a person arising, accruing or existing in consequence of, or in anticipation of, that person's death, other than any such right, claim or interest created by will or other voluntary disposition by such person or resulting from an express limitation in the disposition of the property to such person."
Section 83A (19) as amended in the Amended Act provides that:
"To the extent that it is inconsistent with subsections (13) to (18), a foreign judgment shall not be recognised or enforced or give rise to estoppel, and both its recognition and its enforcement shall be regarded as contrary to the public policy of the Territory and, for the avoidance of doubt, a judgment of a foreign court varying a Virgin islands trust without the consent of the adult sui juris beneficiaries shall be considered inconsistent within the meaning of this subsection".