Limitations on trustees' powers: shaking the walls of the trust law temple - Boodle Hatfield

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17 Sep 2020

Limitations on trustees’ powers: shaking the walls of the trust law temple

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Mark Lindley View profile
2 min read

The decision of the Court of Appeal for Bermuda in Grand View Private Trust Company Ltd. v Wong & ors (Civil Appeal No. 5A of 2019) dealt with the important issue of whether there is some limitation, by virtue of the express or implied 'original purpose' of a trust (referred to in the proceedings as the 'sub-stratum'), on the exercise of trustee powers.

In Grand View, the question was whether the trustee of a family trust had acted lawfully in exercising a power of addition of beneficiaries to add the trustee of another trust as a beneficiary and then to transfer the entirety of the substantial trust fund to that other trust.  The other trust was connected with the family, but had been established for primarily charitable purposes and the original beneficiaries could therefore no longer benefit from the funds.  The original beneficiaries commenced proceedings against the trustee, challenging the legality of its actions. 

In the decision at first instance, the judge (Kawaley AJ) declared the plaintiff beneficiaries were entitled to a declaration that the transactions were void, because they went beyond the scope of the powers conferred by the trust instrument.   This was because although the terms of the trust permitted the transactions, the trustees could not exercise those powers to convert a private family trust into, effectively, a perpetual purpose trust from which the relevant family members could no longer benefit.  

The trustee appealed and the Court of Appeal upheld that appeal, overturning the decision at first instance.  After a thorough review of authorities from a number of jurisdictions, the Court rejected the notion of a trust 'sub-stratum' as a free standing rule restricting the scope of the exercise trustee powers.   There are other, established remedies that a beneficiary may rely on if it wishes to challenge a decision (see for example https://www.boodlehatfield.com/the-firm/articles/challenging-a-trustees-decision/).

We understand that the decision of the Court of Appeal for Bermuda may be subject to yet further scrutiny by the Privy Council, which may result in even more developments around this interesting issue.

“The walls of the trust law temple will potentially tumble down if settlors are permitted to execute instruments on an irrevocable basis and later effectively revoke them for the purposes of little more than administrative convenience, almost as if the terms of the instrument have no legal significance... " (per Kawaley AJ, at first instance)

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