The Privy Council Considers The Purpose Of A Trust Is Of Central Importance When Considering Exercise Of Trustee Power

• Published date: 06 January 2023
• Subject Matter: Wealth Management, Litigation, Mediation & Arbitration, Criminal Law, Wealth & Asset Management, Trials & Appeals & Compensation, White Collar Crime, Anti-Corruption & Fraud
• Law Firm: Herbert Smith Freehills
• Author: Mr Richard Norridge and Hussein Mithani

Summary

The Privy Council has recently considered the proper scope of a trustee's power. In short, the Privy Council held that the exercise of a trustee's power must be within the proper purpose of that particular power.

In its ruling the Privy Council did not consider there was an absolute substratum rule (i.e. a rule that a trust's underlying character could never be altered) and they criticised the use of the term "fraud on a power". Instead the Privy Council considered that the better test is whether the exercise of the trustee's power was in accordance with the purpose for which their powers were conferred.

Another interesting point is that the Privy Council explained that there is no overriding principle that the powers in a trust must be exercised in the interest of beneficiaries. Whether or not they should be will depend on the facts of each case.

Hussein Mithani, an associate in our disputes and private wealth team, considers the decision in more detail below.

Background

The dispute in Wong Wen-Young & Ors v. Grand View Private Trust Company Ltd [2022] UKPC 47 concerned two trusts: the Global Resource Trust ("GRT") and the Wang Family Trust ("WFT"). These were Bermuda trusts set up by two brothers, Wang Yung-Ching and Wang Yung-Tsai.

The GRT was a fully discretionary trust for the benefit of individual members of the brothers' family. Whilst the WFT was a purpose trust for the perpetuation of the brothers' business conglomerate, the Formosa Plastics Group ("FPG") as well as various charitable purposes. Crucially, the WFT did not confer any benefit on family members.

In 2005, the trustees of the GRT excluded all family members from the beneficial class of the GRT, and added the trustee of the WFT as the sole beneficiary of the GRT as well as appointing all the assets of the GRT to the WFT trustee. The consequence of this was that all of the assets held for the benefit of the brothers' family was moved to a trustee of a trust of which they were not beneficiaries. The trustees of the GRT relied on their powers within the trust deed which allowed them to add or remove "any person or class or description of persons" to the beneficial class of the trust. Dr Wang, the son of Wang Yung-Ching (along with other heirs of the brothers) (the "Appellants") sought to challenge this and brought action against the GRT trustee (the "Respondent").

Judgments

Bermuda Supreme Court

The Appellants obtained judgment in the Supreme Court of Bermuda in June 2019. The...