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A Seismic Shift to Certainty: “Substratum” and the Proper Construction of Trust Deeds

July 2020 AppealValidity of Trust Deed

The Bermuda Court of Appeal has unanimously allowed an appeal by the Trustee of the US$560m Global Resource Trust (“GRT”) in a significant decision which rejected the proposition that the “substratum” of the trust will prohibit the exercise of powers to add or exclude beneficiaries.

The decision will be of particular interest to trustees in the common law jurisdiction, having reaffirmed the test to be applied when determining the validity of a trustee’s purported exercise of a power.

The Court of Appeal’s decision in Grand View Private Trust Company Ltd v Wong and Ors (Civil Appeal No. 5A of 2019), delivered on 20 April 2020, held that there is no need to imply a trust’s substratum – described as “a metaphorical term the characteristics of which it may be difficult to define, and which may not necessarily exist” – into trustees’ dispositive powers.

In his Judgment, the President of the Court of Appeal, Sir Christopher Clarke, found that, while inappropriate in a case such as this where the Trustee was entitled to add or exclude beneficiaries, if a metaphor has to be used (which it does not) then either:

(i) there was no substratum of GRT; or
(ii) the substratum was one that could shift, and the beneficial core was a flexible one, since the beneficiaries were capable of alteration from time to time throughout the life of the trust.

Moreover, where trustees exercise powers in accordance with what they honestly consider to be the purpose for which a settlor created the powers, this will not constitute a fraud on a power.

 

To continue reading full articles in PDF format:
A Seismic Shift to Certainty: “Substratum” and the Proper Construction of Trust Deeds

 

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