A settlor can settle a trust for many reasons and in doing so, they may decide not to inform the chosen beneficiaries of the existence of the trust.
Whilst that is the settlor’s choice, the trustees of a trust may find themselves in the invidious position of having to navigate between the wishes (implied or expressed) of the settlor to retain the privacy of the trust and their duties as trustees.
In this article, litigation advocate Andrew Langan-Newton considers a recent judgment of the Appellate Court of the Republic of Singapore in which a trustee was found to have been in breach of trust for failing to disclose the existence of a trust to discretionary beneficiaries.
The judgment will be of interest to trustees of Isle of Man law governed discretionary trusts in navigating the wishes of the settlor and their duties under Isle of Man law.
The background to the Singapore judgment
The Singapore Appellate Court’s judgment in Bhojwani v Bhojwani related to an appeal against a judgment of breach of a trust against the sole trustee (“the Trustee”) of a Will trust in a claim brought by his three sons.
The trust had been created by the Will of the trustee’s father (“the Testator”) and settled a portfolio of shares and assets of the Testator’s estate. The discretionary beneficiaries of the trust were listed as the Testator’s three grandsons and their mother (the Trustee’s then wife). The Trustee was vested with wide powers to appoint additional beneficiaries.
The dispute arose between the Trustee and his three sons (as beneficiaries). This included claims for:
- commingling trust assets with the Trustee’s own assets;
- the Trustee’s failure to maintain proper accounts; and
- the Trustee’s concealment of the trust from his sons.
In the first-instance claim, the judge found that the Trustee had failed to disclose the existence of the trust to his sons for almost ten years. The judge decided that the “deliberate concealment of the Trust amounted to a breach of his duty to inform the beneficiaries of their interests under the Trust”.
The Singapore Appellate Court judgment
The Trustee brought an appeal against the first-instance judgment on various grounds, including that the judge had erred in finding that the Trustee had concealed the trust from his sons and/or that he was obliged to inform the discretionary beneficiaries of the existence of the trust.
The Singapore Appellate Court upheld the first-instance judgment that the Trustee had hidden the existence of the trust from his sons for nearly ten years.
In regard to the alternative argument that there was no duty upon the Trustee to disclose the existence of the trust to the sons, the Appellate Court also upheld the first-instance judgment.
The Appellate Court decided that, in the context of discretionary beneficiaries, a trustee owes a duty to take reasonable steps to inform beneficiaries of their rights under a trust, as long as the discretionary beneficiaries have a “realistic and reasonable prospect of benefitting” under the trust.
The Appellate Court made it clear that if a beneficiary has a realistic and reasonable prospect of benefitting, they can only enforce their rights if they have knowledge of the trust. Hiding the trust would frustrate those rights.
The Appellate Court decided, on the specific facts of the claim, that the Trustee’s sons had had a realistic or reasonable prospect of benefitting under the trust the moment that the trust had come into existence. As the Trustee had failed to inform them of the trust and for nearly a decade thereafter, the first Court’s finding of a breach of trust was upheld.
Relevance to Isle of Man trustees
The Singapore Appellate Court’s judgment in Bhojwani v Bhojwani is a salutary reminder for Isle of Man trustees of the risks that they can face in failing to have sufficient regard to their duties as trustees.
Whilst the judgment is a matter of Singapore law, it is likely to be a persuasive judgment upon an Isle of Man Court considering similar facts.
Accordingly, Isle of Man trustees facing similar decisions whether or not to disclose the existence of a trust to discretionary beneficiaries would be prudent to take into account whether a discretionary beneficiary has a realistic and reasonable prospect of benefitting under a trust.
If you have any questions on the issues raised in this article, please contact Andrew Langan-Newton.