Grand View Private Trust Co Ltd & ors v Wong & anr [2023] WTLR 149

Analysis

The Global Resource Trust No.1 (the GRT) was created by a declaration of trust dated 10 May 2001. It was accepted that the true economic settlors were two brothers, YC Wang and YT Wang (the founders), who had built a group of companies from the 1950s into one of the largest business conglomerates in Taiwan (FPG Group). They had died in 2008 and 2014 respectively.

Shortly after the GRT was established, Grid Investors Corp, an investment holding company ultimately owned by the founders which held shares in FPG companies, was transferred to the GRT trustee. The value of those shares was US$560m at the time of the appeal in Bermuda.

During the trust period of 100 years, the trustee of the GRT had a discretionary power to apply the whole or part of the capital and income of the fund to or for the benefit of the children and remoter issue of the founders. The power to add to or exclude from this class ‘any person or class or description of persons’ was the power at issue on the appeal. Such persons were defined in the trust deed as beneficiaries, although in fact they were objects of the power. No such power existed regarding the ultimate beneficiaries who had a fixed, contingent interest in the trust assets, if any, at the expiry of the trust period. They were specified as the children and remoter issue of the founders then living. Winston Wong, Riley Wong, Jennifer Wang and Tony Wang were all objects of the GRT at the time of its creation and contended on the appeal that they still were.

On the same day as the GRT was established another Bermuda-based trust was established at the direction of the founders. Grand View Private Trust Co Ltd (Grand View) as trustee declared the Wang Family Trust (the WFT). WFT was a purpose trust. The trust assets largely comprised shares in investment companies owning between them FPG shares with a total value over US$3.5bn at the time of the hearing before the Bermuda Court of Appeal.

In May 2005, the directors of the GRT trustee resolved to execute an irrevocable deed pursuant to which Grand View as trustee of the WFT would be added as a discretionary object, all the other discretionary objects (the children and remoter issue of the founders) would be excluded, and all the assets of the GRT would be transferred to Grand View as trustee of the WFT.

Those resolutions were not implemented. Instead the directors of the GRT trustee further resolved that the GRT trustee would:

1. (i) transfer the assets of the GRT to Grand View (of which they were also directors) as trustee for the WFT;
2. (ii) add Grand View as an object of the GRT; and
3. (iii) exclude all of the existing objects of the GRT (including the appellants).

The directors of the GRT trustee took steps to execute those decisions in September 2005, resolving to exercise the powers to add and exclude discretionary objects and to appoint the entire fund to the trustee of the WFT.

The GRT trustee was placed into voluntary liquidation on 29 November 2006 and dissolved on 30 January 2007.

Winston Wong, Riley Wong, Jennifer Wang and Tony Wang were all objects of the GRT at the time of its creation and challenged the validity of the changes to the GRT’s objects and the transfer of its assets to Grand View as trustee for the WFT. They had succeeded before the Bermuda Supreme Court but that decision was overturned by the Bermuda Court of Appeal. They appealed to the Judicial Committee of the Privy Council.

It was not in dispute that the power conferred to add and exclude beneficiaries was a fiduciary power. As such its exercise was subject to the duties and restrictions imposed by equity. In issue were:

1. (i) whether the way in which the power had been exercised was not within, or was contrary to, the express or implied terms of the power (the scope of the power rule); and
2. (ii) whether the use of the power by the GRT trustee, although within its scope, was for an improper purpose, namely a purpose other than the one for which it was conferred (the improper purpose rule).

It was common ground on the appeal that the proper purpose(s) of a fiduciary power were to be determined as at the date of the instrument conferring the power and were to be objectively determined. It was also common ground, and in the board’s view correct, that documents which objectively inform the context of the instrument in question, such as in this case the WFT trust deed, are admissible, as are substantially contemporaneous documents which are intended to be read with the trust deed, such as a letter of wishes provided by the settlor or economic settlor.

Except for the separate issue concerning the rule against remoteness of vesting, all the matters argued before the board concerned the construction of clause 8 of the GRT trust deed and the proper purpose rule as it applied to the powers conferred by clause 8.

Held:

1. (1) It was submitted correctly that a purpose could not be added as a beneficiary under the terms of clause 8. Only a person could be added. However, clause 1.6 defined a person as including a person acting in a fiduciary capacity. There was no justification for construing the power so narrowly as to rule out the exercise of the power to add a trustee of another trust. Clause 4 permitted payments and transfers to as well as for the benefit of a beneficiary. A power to appoint in favour of a person will generally include a power to benefit a purpose. There was no justification for excluding a person acting in a fiduciary capacity. There could be cases in which the exercise of discretionary powers in favour of a trustee would be objectionable but that would be a question not of construction of the clauses but a question as to its purpose or as to the propriety of a particular exercise of the power.
2. (2) The relevant question was whether the purpose for which the power was exercised was outside the purpose, or the range of purposes, for which the power was conferred. The purpose for which a power has been exercised in any particular case is a question of fact, namely the subjective purpose of the decision-maker(s). In the current case there was no dispute that the purpose was to exclude all the children and remoter issue as the entire existing class of beneficiary and to substitute the purpose trust, the WFT, as the beneficiary. The question was whether that purpose was outside the purposes for which the powers of addition and exclusion of beneficiaries had been conferred under clause 8 of the trust deed.
3. (3) The broad language used in clause 8 was only part of the enquiry. It was necessary to set clause 8 in the context of the GRT trust deed as a whole and in the context of the circumstances in which GRT was established:
   1. (a) The natural reading of the GRT trust deed as a whole demonstrated that it established a family trust, for the benefit of the direct descendants of the founders. The family character was emphasised by the terms of the trust deed.
   2. (b) By contrast there was nothing in the GRT trust deed beyond the use of ‘any’ in clause 8 and the wide definition of ‘person’ to suggest that clause 8 intended to confer on the trustee the power to deprive all the children and remoter issue of the founders of any benefit under the trust and to substitute a trust whose purpose was wholly different.
   3. (c) The breadth of the language used in those two provisions would provide a more solid basis for Grand View’s case if there was no other reasonable explanation for them. However, the language was consistent with a narrower identification of the purpose of the powers under clause 8.
   4. (d) The context in which the GRT was established strengthened the case for limiting the purpose of the powers under clause 8. It was very significant that the founders established the WFT at the same time as the GRT. Objectively they were dividing the shares owned into two parts. By a large margin the greater part of the value of those shares was to be owned by the WFT and other purpose trusts. Family members were not to benefit.
   5. (e) The founders held strong views as to the purposes for which wealth should be put, as evidenced by the lengthy citation of the founders’ statement in the recital to the WFT trust deed. This provided further support for a narrow analysis of the purpose of the GRT and the powers contained in clause 8.
   6. (f) There was nothing in the terms of the GRT trust deed, or in the surrounding circumstances at the time that it was made, to suggest that the actual and potential interests of the founders’ children and remoter issue were intended to terminate if, in the view of the GRT trustee, the trust in their favour was no longer needed to provide such alignment and motivation as the founders had intended.
4. (4) In the 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, the purpose of the powers of addition and exclusion was to further the interests of the beneficiaries, or one or more of them. It was not accepted that there was engagement of a principle that the powers in clause 8 could not be exercised so as to destroy the nature or character, or the substratum, of the trust namely to benefit the founders’ families (the substratum rule):
   1. (a) The position was not analogous to a power of amendment. It involved no amendment of the provisions of the GRT trust deed. Clause 8 specifically empowered the trustee to add or exclude from the class of beneficiaries. The definition of beneficiaries implicitly and explicitly built in the possibility of changes.
   2. (b) There was no absolute substratum rule as put forward. Some of the authorities relied on were directed to the scope of an amendment power, as a matter of construction, rather to identifying the purpose of the power. They did not support a substratum rule in the absolute terms advanced.
   3. (c) If a trust has a discernible overall purpose, it will be a very powerful factor in deciding the scope of a power of amendment contained in the trust deed. It is not, however, an overriding factor which, notwithstanding all other considerations, determines the proper construction of the power.
   4. (d) The absolute nature of the substratum rule as advanced was not consistent with Australian authority (Kearns v Hill [1990] and Permanent Trustee Co Ltd v National Australia Managers Ltd [1998] considered).
   5. (e) The cases concerning the Variation of Trusts Act 1958 were not dealing with the construction, or with the proper purposes, of powers of amendment contained in a trust deed.
   6. (f) Although the substratum rule was rejected as an absolute principle, the purpose of a trust is of central importance in determining the purpose of a power to amend it as it is for determining the purpose of powers to add or exclude beneficiaries or objects.
5. (5) It is generally the case that fiduciary powers conferred on a trustee of a trust with identified beneficiaries must be exercised to further the interest of the beneficiaries. That was the case with essentially administrative powers, such as powers of investment.
6. (6) The power to add or exclude beneficiaries is of a potentially different character. It has the capacity to effect significant even fundamental changes to a trust. The purpose of such a power is not determined by applying as an overriding principle a rule that all powers must be exercised in the interests of some or all of the beneficiaries. The task is to discern the intended purpose of the particular power of addition and exclusion in the context of the particular trust. This requires the approach of considering the power in the context of the trust instrument, and of the circumstances surrounding it.
7. (7) In light of those conclusions the challenged decision was taken by the GRT trustee for an improper purpose.
8. (8) There was no basis for concluding that the reference to the stricter equitable rule against remoteness of vesting in clause 9 should be read into clause 4. There was nothing in the terms of the trust deed to suggest that this was an oversight or mistake as opposed to a deliberate choice.

Appeal allowed.

JUDGMENT LORD RICHARDS: Introduction [1] It is a fundamental principle of equity that a fiduciary power may be exercised only for a purpose for which the power has been conferred. The main issue on this appeal is whether the trustee of a settlement exercised for a proper purpose an express power contained in the trust …

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