Trust & Company Cases Update

• Published date: 28 July 2023
• Subject Matter: Corporate/Commercial Law, Insolvency/Bankruptcy/Re-structuring, Corporate and Company Law, Directors and Officers, Insolvency/Bankruptcy, Trusts
• Law Firm: Simcocks
• Author: &nbsp Simcocks

The UK Supreme Court and Privy Council delivered three judgments in 2022 which will be of practical interest to Isle of Man fiduciaries. We briefly outline these decisions below and consider some practical implications.

The first is the UK Privy Council decision in Grand View, which relates to restrictions on the exercise of a power to add beneficiaries by reference to the purpose of the power.

The second is the UK Privy Council decision in Equity Trust (Jersey) Limited, which concerns the priority of successive trustees' rights of indemnity from the trust assets.

The third is the UK Supreme Court decision in Sequana, which relates to when a duty on directors to take into account the interests of creditors is triggered, and its content.

The purpose of a power - Grand View Private Trust Company v Wen-Young Wong [2022] UKPC 47

This was a decision of the Privy Council in a Bermuda appeal. The trust deed gave the trustee power to add persons to the class of beneficiaries. This is a standard form of clause in modern trust deeds. Like all fiduciary powers, the power must be exercised for a proper purpose, or the exercise will be invalid.

The settlors had originally intended to leave all their personal wealth to good causes rather than their children, and therefore made the trust to benefit their children, who were the beneficiaries.

The settlors' intention changed, and they decided to leave their personal wealth to their children. Consequent on this change, the settlors' views became that there was no longer any need for a trust for their children. The trustee therefore decided that the trust fund should be used for philanthropic purposes. The trustee added a philanthropic purpose trust as a beneficiary and appointed the trust fund to it, to be used for purposes unconnected with the interests of the children.

The Privy Council decided that:

1. a power vested in a trustee must not be exercised for an improper purpose;
2. the purpose for which the settlor conferred a power must be judged based on the settlor's intention when the settlement was made;
3. in this case, there was no evidence of the settlors' intentions available other than the terms of the settlement;
4. the purpose for which the power to add beneficiaries had been conferred was to promote the interests of those already in the class of beneficiaries (for example, to add a spouse of a beneficiary);
5. the trustee had exercised its power for an improper purpose and the exercise was void.

There are a number of...