Grundy, Milton: From the archive - June 2013

Readers of Paolo Panico’s International Trust Laws (Oxford University Press 2010) will recall his discussion of the SPV – the Special Purpose Vehicle, which is required by a number of modern financial transactions to behave in a predictable way, but which does not have – or need to have – a beneficial owner. Guarantee companies and private foundations may prove useful in this context, but another effective and flexible approach is to create a trust with a business purpose. This is something which English law has never allowed, but it is now provided for in a number of offshore jurisdictions whose law derives from English law. Interestingly, the concept first saw the light of day in the Israeli Trust Law of 1979. Israel, of course, is not to be numbered among the offshore jurisdictions, but a trust made by a non-resident settlor has since 2003 been treated as non-resident and effectively “offshore” – see Michael Shine’s presentation in Monte-Carlo in 2007. The first appearance of the offshore purpose trust proper was in the 1984 International Trusts Act of the Cook Islands. This was followed by the Trusts (Special Provisions) Act 1989 in Bermuda, which was the model for corresponding legislation in other offshore jurisdictions – Guernsey, Jersey, the Isle of Man, Mauritius, San Marino and Dubai. The Bermudian law was amended in 1998; this was then the model for the Purpose Trust Act 2004 in the Bahamas, and in the meanwhile, Belize had enacted its own purpose trust statute, drafted by other hand. The Cayman Islands introduced its STAR Trust in 1997 (see now Part VIII of the Trusts Law – 2011 revision), which – among other things – made possible the purpose trust in Cayman.

John Conder introduced the purpose trust to the ITPA at our Monte-Carlo meeting in 1995. In 2001, it was the subject of a Yearbook article by Patrick O’Hagan and Grant Stein, and Paul Matthews addressed the topic in Hamburg in 2003. By 2008, Bermuda had had nearly two decades of experience of purpose trusts, and Vanessa Lovell Schrum came to our Barcelona meeting to tell us about their many uses – in commercial transactions, as a fund to meet claims or pay creditors, as a sinking fund, company reserve or voting trust, or for securitisation, for off balance sheet assets or liabilities or for providing ownership structures. Her talk is a treasury of important information: this link will take you to a summary of her presentation, this link will take you to the full text of her talk.

Milton Grundy