Where a Fiduciary Power May Only be Exercised for the Proper Purpose Intended: Grand View Private Trust Company Ltd v Wen Young Wong and Others
In Grand View v Wong [2022] UKPC 47, two trusts were settled by declaration whereby the now deceased brothers YC Wang and YT Wang were the economic settlors. GRT No 1 Trust (Trust G) to benefit the children and remoter issue of the founders, and Wang Family Trust (Trust W) having no objects, for charitable and non-charitable purposes, to help mankind and those in need with.
Both trusts held assets of substantial value in the family operating company. The Trustees of Trust G, felt that as the beneficiaries were well provided for outside of the trust, and the intention of the settlors was always to leave most of the wealth to the community rather than their family, transfers the assets from Trust G to Trust W. By using its broad powers given to it by the trust deed and relying on the settlors’ intentions, they: appointed the trustees of Trust W as a beneficiary of the Trust G; removed the beneficiaries and future beneficiaries of Trust G; transferred of all the trust assets of Trust G to the Trustees of Trust W; and then subsequently terminated Trust G for lack of funds. Both the trustee companies for Trust G and Trust W shared common directors.
Some of the beneficiaries of Trust G challenged the actions taken by the trustees of Trust G.
The Plantiff’’s claimed that there was a breach of trust on four ground: (i) the trustee took irrelevant considerations into account and did not act for the benefit of the beneficiaries of Trust G; (ii) it acted in excess of its powers; (iii) it failed to exercise its powers for the purposes for which they were conferred,; and (iv) it acted in breach of the rule against remoteness of vesting in transferring trust assets to Trust G, a purpose trust. The issue was that in excising such power, did the trustees of Trust G exercise proper purpose. The writ sought a declaration that Grand View hold the GRT assets transferred to it on resulting or constructive trust for the Trust G, an account of all dealings with the assets and further associated relief.[1]
In determining the meaning of the proper purpose rule, the Board of the Privy Council considered:
(a) That fraud on a power, a term also used, is “not confined to cases involving some reprehensible conduct on the part of the trustees or other fiduciary, but extends to any case where a fiduciary power is used for a purpose not falling within the purposes for which the power has been conferred, even though the trustees may have acted in good faith and genuinely with a view to benefiting the beneficiaries”. [1]
(b) The proper purpose should be objectively determined as at the date of the instrument conferring the power based on the Founders intention.
(c) The extent to which external documents other than the trust deed may be admissible, in determining the purpose of the fiduciary power, can objectively inform the context of the instrument in question, however a document such as a letter of wishes is not admissible in determining the purpose of those powers.
(d) The terms of the trust deed were wide enough to exclude beneficiaries. The trustee felt that there has been a change of circumstances which altered the basis on which Trust G was formed. That beneficiaries would be inheriting ample wealth outside of the trust and the trust was no longer necessary to incentivise them to take an interest in the operating company held by the trust through its holding company. However, the Board felt that the question should be “whether the purpose for which the power was exercised was outside the purpose, or the range of purposes, for which the power was conferred”. Was the purpose of the trustee outside the purpose or purposes for which the powers of addition and exclusion of beneficiaries conferred and not by the breath of the clause. It is common for wide language in a clause to be restricted to their permissible exercise by their proper purpose.
(e) It was clear to the Board that in reading the deed for Trust G, that it was a family trust for the direct descendants of the Founders and that two trusts were established by the Founders for quite different purposes, and that there was nothing in Trust G to suggest that the trust assets may be used for any purpose whatsoever.[2]
The Board found that the decision of the trustee of the Trust G to remove and appoint beneficiaries was for an improper purpose and therefore renders its decision void.
Concluding Comments:
(i) It is advisable whenever a trustee is contemplating making a momentum decision regarding a trust other than on administrative matters, it should seek guidance from the court first; or permission from all the beneficiaries who have been well consulted in obtaining respective independent legal opinion.
(ii) That substance over form will always prevail. Any literal interpretation of documents will never suffice no matter how wide the relevant clauses can be read.
(iii) Before the settlement of a trust, always consider the likelihood of circumstances changing surrounding it. How can it be accommodated for? Should the trust document contain a range of purposes to enable the trustee to exercise its power for which is was conferred?
[1] Page 15 Grand View Private Trust Company Ltd v Wen Young Wong and Others [2022] UKPC 47
[2] Page 18 Ibd
[3] page 29 “It is the view of the Board, in light of the focus of the GRT trust deed on the children and remoter issue of the Founders and the circumstances in which the GRT was established referred to above, that the purpose of the powers of addition and exclusion was to further the interests of the Beneficiaries, or one or more of them”.
The contents of this article are generalised, and readers are urged to seek specific advice on matters and not rely solely on this text.
© Vibha Vallabh, Ellora Private Office, June 2023