On 8 December 2022, the Judicial Committee of the Privy Council handed down judgment in joint appeals in Wong Wen-Young & Ors v. Grand View Private Trust Company Ltd [2022] UKPC 47, providing much-awaited clarification of the question of the-called ‘substratum rule’ in relation to trusts. Baker McKenzie’s London office acted for two of the successful appellants, Dr Winston Wong OBE and Riley Wong.
The judgment – delivered by Lord Richards, with whom the four other members of the panel agreed - is the latest decision in the long-running trusts litigation brought by Dr Wong following the death in 2008 of his father, Wang Yung-Ching, who founded the Formosa Plastics Group in Taiwan. Dr Wong and other heirs have been seeking to recover assets worth in excess of US$20bn for Mr Wang’s estate and for the estate of Mr Wang’s younger brother, Wang Yung-Tsai. Those assets had been placed into a series of offshore trusts during the last years of the brothers’ lives, including two settlements created on the same day in May 2001:
• A non-charitable purpose trust called the Wang Family Trust, established for purposes including the perpetuation of the Formosa Plastics companies and various philanthropic purposes; and
• A discretionary trust called the Global Resource Trust, established for the benefit of the children and remoter descendants of the two Wang brothers.
In the current proceedings, Dr Wong and his grandson, Riley Wong, challenged the decision by the Global Resource trustee in 2005 to exclude all family members from the beneficial class of the trust, add the trustee of the Wang Family Trust as the sole beneficiary and appoint all of the trust’s assets to the Wang Family trustee. Dr Wong argued that the original purpose of the Global Resource Trust was to benefit the children and remoter issue of his father and uncle and that the trustee’s decision in 2005 was a ‘fraud on its power’, i.e. for an improper purpose, because the trustee had fundamentally altered the ‘substratum’ of the Global Resource Trust, as an irrevocable, 100-year, private trust for the family, and thus subverted its purpose. Defending the action, Grand View Private Trust Company Limited (as trustee of the Wang Family Trust), relied on the extremely widely drafted terms of the powers to add “any person” as a beneficiary to argue that the settlors intended from the outset a flexible structure that would change according to circumstances.
Dr Wong obtained summary judgment before (then) Assistant Justice Kawaley in the Supreme Court of Bermuda in June 2019. The judge concluded that a trustee’s powers of amendment cannot be used to alter the underlying character or ‘substratum’ of a trust, which in the instant case was illustrated by its nature as an irrevocable settlement for the benefit of family members, who were also the default beneficiaries under the discretionary trusts.
That decision was reversed by a unanimous Court of Appeal in April 2020, which issued three judgments totalling 144 pages. Rejecting the existence of a freestanding substratum rule, the judges decided that what matters is whether the exercise of a power is within the scope of the trust instrument and whether the power has been exercised for a proper purpose. They found no fetter on the widely drafted powers in the Global Resource Trust deed: “‘Any’ means ‘any’.”[1] In his leading judgment, Clarke P. found that the power to add or exclude beneficiaries could be exercised without regard to the interests of the existing beneficiaries of the Global Resource Trust; and that the trust had no substratum (or, if it did, it was an extremely adaptable one). However, the Court of Appeal granted Dr Wong – and one of Mr Y.T. Wang’s sons, who had been granted permission to intervene in the appeal in late 2019 – permission to appeal to the Privy Council in London.
Before the Privy Council, Dr Wong argued that the Court of Appeal had erred in its analysis of the scope of the trustee’s power to add or remove beneficiaries. He contended that the court should begin by identifying the purpose of the original gift, which in this case was plainly not to benefit the Wang Family Trust (the purpose trust settled on the same day yet not included as a beneficiary of the Global Resource Trust) but was to benefit members of the Wang family.
In its keenly awaited decision, the Privy Council reaffirmed the basic principle that trustees must act in accordance with the purpose for which their powers were conferred. Assessing the evidence filed by Grand View – assumed to be true for the purposes of the summary judgment application – Lord Richards was clear that the purpose of the Global Resource Trust was to benefit members of the Wang family and that transferring the assets to a non-charitable purpose trust, from which the family cannot ever benefit, was an improper purpose. Assessed in that way, there was no need for an absolute ‘substratum rule’.
Baker McKenzie instructed Elspeth Talbot Rice KC (XXIV Old Buildings) and Dakis Hagen KC, Emma Hargreaves and Stephanie Thompson of Serle Court. Dr Wong’s Bermudian attorneys were led by Rod Attride-Stirling of ASW Law. The co-appellant was represented by Baker McKenzie’s Taipei office, MJM Limited in Bermuda and Stewarts Law in London. Skadden acted for the defendant/respondent.
Baker McKenzie London partner, Anthony Poulton, commented: " We are delighted for Dr Wong that this this aspect of the litigation has been decided in his favour. This was an important case in the world of trust litigation and one that has divided opinion. At its heart is the question of how wide a trustee's powers can be and whether there are inherent limits on the exercise of those powers, notwithstanding the words in the deed. This was a case involving a wholesale change in direction: the trust was established to benefit family members, but the trustee appointed the assets to be used for entirely different purposes. Our clients’ case from the outset has been that this was a misuse of the trustee's powers and we are really pleased for our client that the Privy Council agreed.”
The judgment is available here.
The judgment – delivered by Lord Richards, with whom the four other members of the panel agreed - is the latest decision in the long-running trusts litigation brought by Dr Wong following the death in 2008 of his father, Wang Yung-Ching, who founded the Formosa Plastics Group in Taiwan. Dr Wong and other heirs have been seeking to recover assets worth in excess of US$20bn for Mr Wang’s estate and for the estate of Mr Wang’s younger brother, Wang Yung-Tsai. Those assets had been placed into a series of offshore trusts during the last years of the brothers’ lives, including two settlements created on the same day in May 2001:
• A non-charitable purpose trust called the Wang Family Trust, established for purposes including the perpetuation of the Formosa Plastics companies and various philanthropic purposes; and
• A discretionary trust called the Global Resource Trust, established for the benefit of the children and remoter descendants of the two Wang brothers.
In the current proceedings, Dr Wong and his grandson, Riley Wong, challenged the decision by the Global Resource trustee in 2005 to exclude all family members from the beneficial class of the trust, add the trustee of the Wang Family Trust as the sole beneficiary and appoint all of the trust’s assets to the Wang Family trustee. Dr Wong argued that the original purpose of the Global Resource Trust was to benefit the children and remoter issue of his father and uncle and that the trustee’s decision in 2005 was a ‘fraud on its power’, i.e. for an improper purpose, because the trustee had fundamentally altered the ‘substratum’ of the Global Resource Trust, as an irrevocable, 100-year, private trust for the family, and thus subverted its purpose. Defending the action, Grand View Private Trust Company Limited (as trustee of the Wang Family Trust), relied on the extremely widely drafted terms of the powers to add “any person” as a beneficiary to argue that the settlors intended from the outset a flexible structure that would change according to circumstances.
Dr Wong obtained summary judgment before (then) Assistant Justice Kawaley in the Supreme Court of Bermuda in June 2019. The judge concluded that a trustee’s powers of amendment cannot be used to alter the underlying character or ‘substratum’ of a trust, which in the instant case was illustrated by its nature as an irrevocable settlement for the benefit of family members, who were also the default beneficiaries under the discretionary trusts.
That decision was reversed by a unanimous Court of Appeal in April 2020, which issued three judgments totalling 144 pages. Rejecting the existence of a freestanding substratum rule, the judges decided that what matters is whether the exercise of a power is within the scope of the trust instrument and whether the power has been exercised for a proper purpose. They found no fetter on the widely drafted powers in the Global Resource Trust deed: “‘Any’ means ‘any’.”[1] In his leading judgment, Clarke P. found that the power to add or exclude beneficiaries could be exercised without regard to the interests of the existing beneficiaries of the Global Resource Trust; and that the trust had no substratum (or, if it did, it was an extremely adaptable one). However, the Court of Appeal granted Dr Wong – and one of Mr Y.T. Wang’s sons, who had been granted permission to intervene in the appeal in late 2019 – permission to appeal to the Privy Council in London.
Before the Privy Council, Dr Wong argued that the Court of Appeal had erred in its analysis of the scope of the trustee’s power to add or remove beneficiaries. He contended that the court should begin by identifying the purpose of the original gift, which in this case was plainly not to benefit the Wang Family Trust (the purpose trust settled on the same day yet not included as a beneficiary of the Global Resource Trust) but was to benefit members of the Wang family.
In its keenly awaited decision, the Privy Council reaffirmed the basic principle that trustees must act in accordance with the purpose for which their powers were conferred. Assessing the evidence filed by Grand View – assumed to be true for the purposes of the summary judgment application – Lord Richards was clear that the purpose of the Global Resource Trust was to benefit members of the Wang family and that transferring the assets to a non-charitable purpose trust, from which the family cannot ever benefit, was an improper purpose. Assessed in that way, there was no need for an absolute ‘substratum rule’.
Baker McKenzie instructed Elspeth Talbot Rice KC (XXIV Old Buildings) and Dakis Hagen KC, Emma Hargreaves and Stephanie Thompson of Serle Court. Dr Wong’s Bermudian attorneys were led by Rod Attride-Stirling of ASW Law. The co-appellant was represented by Baker McKenzie’s Taipei office, MJM Limited in Bermuda and Stewarts Law in London. Skadden acted for the defendant/respondent.
Baker McKenzie London partner, Anthony Poulton, commented: " We are delighted for Dr Wong that this this aspect of the litigation has been decided in his favour. This was an important case in the world of trust litigation and one that has divided opinion. At its heart is the question of how wide a trustee's powers can be and whether there are inherent limits on the exercise of those powers, notwithstanding the words in the deed. This was a case involving a wholesale change in direction: the trust was established to benefit family members, but the trustee appointed the assets to be used for entirely different purposes. Our clients’ case from the outset has been that this was a misuse of the trustee's powers and we are really pleased for our client that the Privy Council agreed.”
The judgment is available here.
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