The recent and keenly awaited
The key issue before the formal body of advisers to the
The trust settlors were two brothers who founded
The founders established two
The trustee 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 at issue in this dispute was the trustee's power to add or exclude "any person or class or description of persons" as beneficiary, as set out in clause 8 of the GRT trust deed.
Simultaneously, the founders had also established the
Although the trustees of GRT and WFT were separate entities, they had common directors, two daughters of one founder and two sons of the other founder.
By way of background to this decision, the GRT trustee referred to "the founders' firm intention to leave the vast majority of their wealth to society, rather than to their children and their wives, all of whom were then enjoying ample wealth and privilege".
This was the exercise of power by the GRT trustee that was challenged by the founders' other family members in proceedings commenced in
At first instance, the
PRIVY COUNCIL DECISION
In a unanimous decision, the board of the
(1) Duties and restrictions imposed on the fiduciary powers of a trustee. It was not disputed that the powers under clause 8 were fiduciary powers, the exercise of which is subject to duties and restrictions imposed by equity. That involved a first consideration, of whether the way the power was exercised was not within, or contrary, to the express or implied terms of the power, namely scope of the power rule. The second consideration was whether the GRT trustee's use of the power - although within its scope - was for improper purpose, namely the proper purpose rule.
Since the powers under clause 8 had been expressed in very wide terms, the board did not have much difficulty concluding that the challenged decision of the GRT trustee was within the scope of its powers.
The application of the proper purpose rule was more controversial. The board considered the relevant question was whether the purpose for which the power was exercised was outside the purpose, or range of purposes, for which the power was conferred.
(2) Is there a "substratum" rule? The plaintiffs' principal submission was that trustee powers to add and exclude beneficiaries cannot be exercised to destroy the nature or character, or the substratum, of the trust. This was referred to as the substratum rule.
Having conducted an extensive review of relevant authorities, the board held that there was no absolute substratum rule. While the purpose of the GRT would be of central importance in determining the purpose of power under clause 8, it would not constitute a default overriding factor.
(3) What are the proper purposes of power under clause 8? A natural reading of the GRT trust deed as a whole demonstrated that it established a family trust for the benefit of direct descendants of the founders.
In the board's view it was very significant that the founders established WFT at the same time as GRT. They were dividing the
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 - the board concluded that the purpose of clause 8 was to further the interests of the beneficiaries, meaning the children and remoter issue of the founders.
(4) Could GRT trustee validly use its powers to destroy, rather than advance, the interests of identified beneficiaries? It is generally the case that fiduciary powers conferred on a trustee of a trust with identified beneficiaries must be exercised to further the interests of the beneficiaries. This is clearly the case with essential administrative powers, such as the powers of investment.
However, the board considered that the power to add or exclude beneficiaries is a power of a potentially different character, since it had the capacity to effect fundamental changes to a trust. In the case of such a power contained in any particular trust deed, the question to ask is whether it is intended to have that capacity, or indeed have any purpose that goes wider than simply furthering the interests of the identified beneficiaries. This requires the approach of considering the power in the context of the trust instrument, and the circumstances surrounding it.
In this case, the GRT had a clear purpose, which accordingly has a decisive effect on identifying the purpose of the powers under clause 8.
This is a valuable decision exploring the nature and scope of trustee power to add and exclude beneficiaries, which is a power that does not come into the spotlight very often. According to the
This is a reminder that every trust settlement is a tailored solution. There is no one-size-fits-all type of rule or principle that determines the purpose of the trustee's powers.
An original version of this article first appeared in
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
© Mondaq Ltd, 2023 - Tel. +44 (0)20 8544 8300 - http://www.mondaq.com, source