The Privy Council has ruled against the Bermuda Court of Appeal in a Bermuda purpose trust case which challenged the decision of the trustees of a multibillion-dollar Taiwanese plastics fortune to remove the settlors’ family members as beneficiaries.

Family had been the beneficiaries of an original trust, The Global Resource Trust No 1.

But a revesting of the assets into new corporate and trust entities, including purpose trusts in Bermuda, resulted in the removal of the family members as beneficiaries.

Instead, the trustees decided the purposes of The Grand View Trust, would include holding and acquiring shares in the Formosa Plastics Group, which is one of the largest business conglomerates in Taiwan, with a view to supporting this main asset, as well as charitable purposes including providing help for those in need and improving living standards.

The combination of charitable and non-charitable purposes in a trust of this sort is allowed under Bermuda law.

The trustees believed they were entitled to revest the assets and remove the original beneficiaries because a broad-reaching clause in the original trust gave them the power to do so.

The issue was first heard by the former Chief Justice Ian Kawaley in a case for which he came out of retirement, and which lasted five months involving a phalanx of legal professionals.

The Privy Council stated in their decision, which was released last week after a hearing in March, that Mr Kawaley had held “that the trustee had invalidly exercised its powers to add and exclude discretionary objects and its powers of appointment, and declared the trustee’s acts in those respects to be void and of no effect.

“An appeal against this decision was allowed by the Court of Appeal of Bermuda (Sir Christopher Clarke P, Smellie JA and Subair Williams JA), which also granted leave to appeal to the Board.”

The Privy Council concluded the “proper purpose rule”, a point raised by the appellants, which states a trustee may not use his powers except for the legitimate purposes of the trust, was important.

The decision reads: “The purpose of a trust is of central importance in determining the purpose of a power to amend it, as it is indeed also for determining the purpose of powers to add or exclude objects or beneficiaries . . .”

The Privy Council explained the “natural reading of GRT trust deed as a whole demonstrates that it established a family trust, for the benefit of the direct descendants of the Founders. This family character is emphasised by the terms of the trust deed, to a degree which may be unusual in the world of discretionary trusts.”

The Privy Council also explained the power to add to or exclude from “this class”, in this case, the family members, “any person or class or description of persons is the power at issue on this appeal.

“No such power existed as regards the ultimate beneficiaries who had a fixed, contingent interest in the trust assets, if any, at the expiry of the trust period. They were specified as the children and remoter issue of the Founders …”

The Privy Council said they concluded that the exercise of those powers was invalid.

“The Board concludes that the appeal succeeds, for the reasons given in this judgment, as regards the application of the proper purpose rule to the challenged decision.”