Trustee discretion – overstepping the mark

Trustees of discretionary trusts usually have wide discretion as to how they distribute trust assets.  However, even at its widest, their discretion is not absolute.  Occasionally, trustees will take a decision that the trust beneficiaries consider to be beyond the scope of the trustees' powers.  Grand View Private Trust Co Ltd and others v Wong and others [2022] UKPC 47 is an example of this.

In Grand View, the Privy Council (the highest court of appeal from the courts in Bermuda) considered an appeal as to whether a Bermudan trust's trustee properly exercised their powers contained in the trust deed to exclude and add beneficiaries of a trust and subsequently distribute of all the trust's assets to a new beneficiary.

The facts

Brothers YC and YT Wang (the 'Founders') built a group of companies known as the Formosa Plastics Group (the 'Family Company'), which proved very successful.  The Founders decided that some Family Company shares should be placed into trust for charitable purposes, with family members also having limited benefit to motivate them to support the growth and prosperity of the Family Company and charitable foundations.  It was later decided that instead of there being only one trust there would be two: one to support the Family Company's longevity and charitable foundations and another to motivate family members by benefitting them.

The Founders created the 'Family Trust' by declaration of trust dated 10 May 2001: a discretionary trust for the benefit of the children and remoter issue of each of them.  The Family Trust's trustee has power to add and exclude persons from the class of beneficiaries.

On the same day as the Family Trust was established, another Bermudan trust – this time a purpose trust - was settled by the Founders to hold additional shares in the Family Company (the 'Purpose Trust').  The Purpose Trust confers no benefit on members of the Wang family or any other persons.  

Shares in the Family Company were settled into the Family Trust and the Purpose Trust.

In September 2005, the Family Trust trustee resolved to:

1. exclude the Wang family members as beneficiaries of the Family Trust;
2. add the trustee of the Purpose Trust as the sole beneficiary of the Family Trust; and
3. appoint the entire fund of the Family Trust to the trustee of the Purpose Trust.  

It is this decision and its implementation which are challenged in the proceedings.  

The claim

The proceedings were commenced by Dr Winston Wong, the eldest son of YC Wang, and Riley Wong, Dr Wong's grandson.  They alleged that the decision was a breach of trust in that (amongst other things) the trustee took irrelevant considerations into account, did not act for the benefit of the beneficiaries and acted in excess of their powers.

The decision

The Privy Council noted the apparent intention for a single trust to be set up primarily for charitable purposes whilst allowing the directors of the trustee companies (who were family members) to benefit in some minor way to motivate them, and that the steps taken did not effect that proposal.  The Privy Council considered the natural reading of the Family Trust deed as a whole was to establish a family trust, for the benefit of the direct descendants of the Founders.  Moreover, nothing within the Family Trust deed suggested that the power to add and remove beneficiaries was intended to confer on the trustee the power to deprive the Wang family of any benefit at all.  The Privy Council decided that the 'proper purpose' of the Family Trust was to further the interest of the Wang family.  The exercise of the powers in September 2005 went against that proper purpose and was invalid.

This decision will be influential across the English model trust world and provides another weapon in the armoury of beneficiaries unhappy with a trustee's decision. Trustees will need to think carefully about taking action as radical as in this case, and certainly not without taking advice. Settlors should also bear this case in mind when creating trusts and the content of Letters of Wishes should be considered carefully.