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Privy Council Setting Aside Trustee’s Exercise of Discretion

In the recent decision of the Privy Council in Gany Holdings (PTC) SA v Khan (on appeal from the BVI), Lord Briggs confirmed (1) the approach to take when determining whether a gratuitous transfer of property vested the beneficial interest to a trust and (2) when an exercise of a trustee’s discretion may be set aside.

The Privy Council rejected the Court of Appeal’s finding of a legal presumption that when a settlor gratuitously transfers property to the trustee of a previously established trust the property is held subject to the terms of that trust. Such transfers will, however, often form a strong contextual basis for the drawing of common sense inferences as to mutual intention, which is exactly what the Privy Council did here.

The Privy Council confirmed the following approach should be taken when determining whether a gratuitous transfer of property vested that property in a trust:

  • First, if the transferor or transferee makes a written or oral declaration as to the beneficial interest that will generally be decisive, regardless of either’s subjective intentions;
  • Second, in default of any declaration, the Court will look for evidence from which a common intention as to beneficial ownership may be inferred; and
  • Finally, where there is no evidence from which to draw inferences of common intention, recourse may be had to presumptions (eg the presumptions of advancement or of a resulting trust). In modern times, reliance on such presumptions should be rare.

The second issue for the Privy Council’s determination related to whether an appointment under the trust had been made under a misconception on the part of the directors of the trustee company as to what constituted the trust property such that the appointment was voidable. The Privy Council followed the principles in In re Hastings-Bass deceased and Pitt v Holt and held that for the Court to exercise its discretion to set aside a disposition in exercise of the trustee’s powers on the basis of misconception the relevant misconception must have amounted to, or come about as the result of, a breach of fiduciary duty.

Here, the failure by the trustee’s directors to appreciate that the shareholding in the companies formed part of the trust’s property amounted to a serious breach of fiduciary duty on the trustee’s part, sufficient to trigger the Court’s discretionary power to set aside the appointment.

 

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