A recent case, Grand View Private Trust Co Ltd & Anor v Wen-Young Wong & Others (Bermuda) (2022) UKPC 47, dealt with by the Privy Council has provided some clarification in relation to the powers conferred on trustees, how they are exercised, and what beneficiaries can do to object to them.

Introduction

Trustees’ Powers

There are a number of powers conferred upon trustees by legislation. However, the trust deed or document itself may well (i) disapply some of those powers, or (ii) confer additional powers.

Generally, trustees have the ability to:

• invest the assets of the trust;
• delegate certain powers;
• insure trust assets;
• advance capital of the trust to a beneficiary; and
• to advance income to a beneficiary for their maintenance.

Fraud on a Power

However, there is a trust law doctrine known as “Fraud on a Power” which is designed to limit and control the exercise by trustees of the powers conferred upon them, to being for the purpose, or in line with the intention, of the trust itself.

The Case

Background

The case in question was an appeal from the Courts of Bermuda regarding two trusts.

It related to two trusts, being The Global Resource Trust (“GRT”) and The Wang Family Trust (“WFT”), 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. The WFT was a trust for the perpetuation of the brothers’ business conglomerate, The Formosa Plastics Group, as well as various charitable purposes.

A key point was that the WFT did not confer any benefit on any family members. Further, within the trust deed for the GRT, the trustees had the power to add or remove “any person or class or description of persons”.

In 2005, the trustees of the GRT removed all family members from the class of beneficiaries and added the trustee of the WFT as the sole beneficiary, as well as appointing all of the trust assets to the WFT trustee. The consequence was, of course, that the trust assets held for the benefit of the family of the brothers had then been moved to a trust under which they were not beneficiaries.

Accordingly, Dr Wang, the son of Wang Yung-Ching, brought an action against the trustees of the GRT, seeking to challenge their conduct and the exercise of their powers.

Judgments

In the Supreme Court of Bermuda in June 2019, it was held that a trustee could not use their powers to alter the underlying character, or “Substratum” of the trust.

On appeal, the Court of Appeal of Bermuda overturned that decision, stating that there was no such freestanding “Substratum” rule.

That was then appealed to the Privy Council, who unanimously allowed the appeal. However, instead of finding that there was any “Substratum” rule, the focus of the Privy Council was on the purpose of the trust, stating that this was of central importance.

At the same time, the Privy Council were critical of the term “Fraud on a Power” which had traditionally been used for case such as this. The reason for the criticism was that the word “Fraud” usually denoted conduct which is dishonest, reprehensible or immoral. However, the Principle itself merely meant that trustees had not acted or exercised their Powers within the proper purpose of the trust.

Conclusion

Whilst helpful in providing guidance to practitioners in this area of law, and clarifying where the focus should be on (i.e. the proper purpose of the trust), the case didn’t give detailed guidance on how to determine what a “proper purpose” is, how to identify it, or what would and would not be considered as exercising a power in line with a “proper purpose”.

However, it does mean that trustees must be aware that there are limitations on widely drafted powers within trust deeds, and that it would be helpful if a trustee can identify right at the outset what the purpose of the trust is, as this will assist in being able to justify the exercise of any powers conferred upon them.