Bullion in an unlocked room: an expansion of the irreducible core?

Introduction – trustee’s investment duties

Whether found in the trust instrument or in statute, the powers of investment vested in trustees are overlaid with equitable and fiduciary duties. These include the equitable duty of skill and care (sometimes described as a duty to act with prudence) and the fiduciary duty to act honestly and in good faith in the best interests of the beneficiaries. There has long been a question about the scope of these fiduciary duties. In 2017, academic commentary referred to in Tan Yok Koon v Tan Choo Suan [2017] 1 SLR 654 suggested that fiduciary duties are limited to the no-profit and no-conflict rule and therefore narrow and proscriptive in nature (disabling the trustees from acting in certain ways).[1] In this article, we continue the discussion and apply it to the recent case of Credit Suisse Trust Limited v Bidzina Ivanishvili and others [2024] SGCA (I) 5.

Where a trustee holds a minority shareholding in a company it must consider how to exercise their voting rights and regularly review the suitability of retaining the shares. However, where the trustee holds shares in a company sufficient to confer effective control over the company, they must go further. The case of Bartlett v Barclays Bank Trust Co Ltd (No. 2) [1980] 1 Ch 515 establishes that if trustees in this position stand by whilst the directors take excessive risks with the company, then the trustees will be liable. This gave rise to the so called Barlett duty, which imposes two limbs of obligation upon trustees:

• to keep abreast of the goings on of the company and its future; and
• to intervene in some appropriate way if it appears the directors are about to embark on an overly speculative or ill-conceived venture. Quite where the line is drawn between an acceptable risk and a hazardous venture is not clear; Lewin suggests that the duty is to ensure that the company’s assets are "administered cautiously"[2].

Anti-Bartlett clauses are common in trust deeds and affect both elements of the duty in that they restrict or negate the trustee’s duties both to enquire and interfere[3]. There was a suggestion from Underhill & Hayton that such clauses did not operate in relation to the trustee’s decision-making powers as a shareholder (eg to vote directors to the board)[4]. This was relied on by the claimants in Zhang Hong Li & Ors v DBS Bank (Hong Kong) Ltd & Ors [2019] HKCFA 45.

The extent to which such duties can be excluded raises the existential question of the limits of a valid trust; how much can be whittled away before the trust ceases to exist. This was considered by Millett LJ in Armitage v Nurse [1998] Ch 241[5]. He adopted David Hayton's phrase of the irreducible core of a trust. Millett LJ said that the core content was limited to honesty: this is how it was put: to act "honestly and in good faith for the benefit of the beneficiaries"[6]. Millett LJ made plain that the irreducible core does not extend beyond dishonesty and is not offended if the trustee is "indolent, imprudent, lacking in diligence, negligent or wilful".

Because honesty is part of the irreducible core of trustee obligations, it is not possible to exclude the Bartlett duty where the trustee has knowledge of dishonesty; this would offend the irreducible core. Anti-Bartlett clauses appeal to settlors wishing to continue to run the company and also to trustees with little or no expertise in the business sector. The result of this arrangement is that trustees can find themselves as merely passive custodians of shares in trading businesses/investment portfolios with little knowledge of what is actually going on. They might feel comfortable with this because there have been relatively few cases where trustees have been found liable for breach of the investment duty or the Bartlett duty.

Dishonesty is relevant to dishonest/knowing assistance and trustee exoneration clauses. The concept is the same in each and in the criminal law. At the time of the decision in Armitage v Nurse the test for dishonesty was based on that of R v Ghosh [1982] EWCA Crim 2[7] which included a novel second limb – would reasonable and honest people regard the act as dishonest? Millet LJ concluded that knowingly acting against the best interests of the beneficiaries, or being recklessly indifferent to their interests, is dishonest and that if a trustee "acts in a way which he does not honestly believe is in their interests then he is acting dishonestly" (emphasis added). Millet LJ was clearly applying a subjective test.

There is a separate question whether the person genuinely held the belief; the more unreasonable this view the less likely it was genuinely held. Walker v Stones [2001] QB 902 concerned solicitor-trustees and financing for the Brent Walker Group at a time when the Group was financially distressed. Mr Stones claimed to believe that charging a significant part of the trust assets to guarantee a bank loan made to a subsidiary of the holding company in which the trust was sole shareholder, was in the best interests of beneficiaries. He therefore said the claim was within the scope of the exoneration protection and brought a strike out. The Court of appeal in Walker v Stones held that a subjectively held belief in honesty could be objectively so outrageous that "no reasonable solicitor-trustee could have thought that what he did... was for the benefit of the beneficiaries[8]" meaning that that "no reasonable solicitor-trustee could have held that belief"[9], and therefore it was in fact dishonest. This is the view repeated in William Simon Fattal and others v Walbrook Trustees (Jersey) Limited [2010] EWHC 2767 (Ch). Both expand upon the subjective-only view in Armitage v Nurse but are in relation to trustee exoneration clauses rather than anti-Bartlett clauses.

The Ghosh test was ultimately replaced in 2017 (and later confirmed in 2020) by the test in Ivey v Genting Casinos (2017) UKSC 67[10]which concerned a professional gambler who had cheated. He argued that he should still be able to collect his winnings of £7 million. The Supreme Court rejected his appeal and dispensed with the second limb in the Ghosh test. It held that dishonesty was to be determined by reference to the standards of ordinary, reasonable people, bringing it into line with the test for dishonest assistance from Royal Brunei Airlines v Tan [1995] 2 AC 378, which already had an objective element. This change avoided giving those who are mistaken about other people's notion of honesty a means to escape liability.

Since the irreducible core is rooted in the concept of dishonesty, the effect of the Ivey decision and the rejection of the second limb in Ghosh is to potentially expand the compass of the irreducible core.

Zhang: protection for trustees

The content of the irreducible core for a valid trust was considered by the Hong Kong courts in Zhang. The Court of first instance and Court of Appeal found the trustee to be in breach of a high-level supervisory duty to intervene “where no reasonable trustee refrain from exercising otherwise excluded powers"[11]. This power could not be excluded by anti-Bartlett protection.

However, the status quo ante was restored when the Hong Kong Court of Final Appeal (HKCFA) rejected the notion of a high-level ("whatever that might mean"[12]) supervisory duty being part of the irreducible core as it would be 'amorphous and ill-defined' and outside the scope of the bargain struck between settlor and trustee. However, the HKCFA did find that a residual obligation to interfere existed where the trustee had "actual knowledge of dishonesty", which was not the case on the facts in Zhang. An example is given of trustees becoming aware of directors stealing from a company[13]. Indeed, there was such a carve-out in the anti-Bartlett clauses in this case[14].

Whilst Zhang was heard in Hong Kong, the governing law of the trust concerned was Jersey law. Notably, whilst the concept of a high-level supervisory duty was rejected, the HKCFA adopted the phrasing used by the HKCA; "reasonable trustee". This was drawn from Jersey law (Article 21(1) of the 1984 Trust (Jersey) Law) which refers to a trustee executing their duties "as would a prudent person". Whilst the point was not explicitly discussed in the HKCFA judgment, this implies an objective standard was considered in Zhang, as the trustee is being judged by the standard of the reasonable trustee, rather than by what they themselves thought at the time. However, it is worth noting that whilst the claimants cited dishonest breach of trust and/or fiduciary duty at the start of the proceedings[15] Zhang ultimately turned on whether the trustee had been grossly negligent rather than dishonest, as grossly negligent breaches of trust could not be excluded under Jersey trust law.

Ivanishvili: introduction

Whether trustees can sleep soundly has again been questioned by the case of Ivanishvili which is the focus of this article. We examine three key propositions – the duties incumbent upon trustees to; (i) select and monitor an appropriate investment manager; (ii) safeguard trust assets; and (iii) act with loyalty and good faith (and specifically the scope of this duty). That (i) was satisfied was not in issue and CS Trust eventually admitted breach of (ii) and associated losses of $79m. An examination of (iii) permeates much of the appeal and underpins the claim for $1.2bn.

The facts are well-rehearsed and so we summarise them only briefly. Mr Ivanishvili, former prime minister of Georgia, was a very wealthy businessman. He approached Credit Suisse Bank (CS Bank) for help with managing his assets. This led to the introduction (by representatives of CS Bank) to Credit Suisse Trust in Singapore to act as trustee (CS Trust).

A conventional looking structure was put in place consisting of a discretionary trust with two underlying companies, called Soothsayer and Meadowsweet, which were under the control of CS Trust. These two companies entered into an investment management agreement with CS Bank. The relationship officer of CS Bank was the late Patrice Lescaudron. He managed the assets from 2006 and 2015. Losses were discovered in 2015 which were the result of direct defalcations (approx. $79m) and bad investments (resulting in further losses – claimed to total $1.2bn. The losses were made possible by, inter alia, Mr Lescaudron directing transfers from the accounts of Meadowsweet and Soothsayer without the authority of CS Trust.

Ivanishvili at first instance: no-conflict rule and duty to safeguard

When CS Trust discovered the $79m of defalcations, they sought explanations of CS Bank. Their efforts in this regard were considered desultory and lackadaisical; the Judge found that they were too easily fobbed off by CS Bank and ended their enquiries prematurely (the appeal judge described CS Trust’s efforts as "abysmal"[16]). This was attributed to the conflict of interests between CS Trust and CS Bank.

But not only were there defalcations of $79m, CS Trust also concealed them from the beneficiaries, who thereby had no opportunity to avoid the additional, far more significant, losses from poor investments comprising the bulk of the $1.2bn claimed against CS Trust. This failure to act despite having actual knowledge of the defalcations sets Ivanishvili apart from Zhang insofar as CS Trust did have "actual knowledge of dishonesty"[17]. In fact, the anti-Bartlett protections in both cases were "relevantly identical"[18] with both containing a carve-out where the trustee had such knowledge.

The establishment of the investment management relationship was perfectly proper (indeed it was the very reason that Mr Ivanishvili had approached CS Trust in the first place). The involvement of Mr Lescaudron as relationship manager was not the responsibility of CS Trust; he was an employee of CS Bank which was a separate entity, meaning CS Trust could not be vicariously liable for his actions. Thus, the key question was the nature and scope of the duties owed by CS Trust in supervising CS Bank, a separate arm’s length entity.

The trial before the Singapore International Court lasted little more than three weeks. Midway, CS Trust admitted that by 31 December 2008 they ought to have taken reasonable steps to prevent unauthorised payments from the trust, and that in not doing so, breached their duty to safeguard the trust assets. CS Trust suggested that this duty was limited to having to "police the perimeter"; a novel term of their creation. CS Trust admitted they breached this duty in failing to stop the defalcations ($79m) but not the wider investment losses as their admission did not extend to breach of its duty to "review or monitor the wisdom of the investments"[19]. CT Trust settled the defalcation losses on 1 December 2022 and considered that the end of their liability. The Court disagreed.

The first instance judge in Ivanishvili v Credit Suisse Trust Ltd [20] did not find "policing the perimeter" a helpful way of elucidating the duty to safeguard trust assets, and held that this duty was in fact an emanation of the trustee’s core, irreducible and fiduciary duty (authors' emphasis):

“The obligations recognised in the terms of the defendant’s admission sit within the irreducible core of obligations described by Millett LJ in Armitage v Nurse at 253–254. This is what the defendant had to do to meet the obligation to perform the trust honestly and in good faith for the benefit of the plaintiffs. It knew that millions and millions of dollars and euros were leaving its custody of the Trust without its authorisation, and to discharge its core obligations it was required at the very least to inform the plaintiffs of that position”[21].

At first instance, the Court said "Any trustee acting honestly and in good faith in compliance with its duty to safeguard the Trust assets, would have had no justification for continuing to allow Mr Lescaudron to have access to the Trust assets from 30 March 2008"[22]. The Court approached this standard objectively in line with the second limb of the test in Ivey. This followed the Court of Appeal judgment in Zhang, which agreed that the test remains "although a dishonest state of mind is a subjective mental state, the standard by which the law determines whether it is dishonest is objective"[23]. The Court did not explore the spectrum of responses that the trustee could have undertaken in order to assess what level would have been required to discharge the duty of honesty and good faith; presumably because in this case the necessary actions were straightforward – block Mr Lescaudron's access to the accounts and tell the settlor what was going on (we discuss this point further below).

Ultimately, at first instance it was held to be incompatible with the irreducible core to sit at the edge or perimeter of the trust, simply looking for defalcations; the trustees had a duty to take positive step to “advise the beneficiaries”[24], who the Court was persuaded would have moved the portfolio to different investment advisors at the point of discovery (said to be 30 March 2008, earlier than the 31 December 2008 advanced by CS Trust[25]) had they been informed. The trustee had therefore breached its duty to act honestly and in good faith[26].

Equitable compensation was assessed on the basis that from 30 March 2008 the trust assets would have been managed prudently. A proxy was discovered using expert evidence and on that basis the Court ordered CS Trust to pay $742m, comprising the $79m of defalcations plus the losses due to poor investment decisions. CS Trust appealed.

Ivanishvili on appeal: (i) the no-conflict rule

The Court of Appeal agreed with the Court at first instance in finding that CS Trust breached the no conflict rule, drawing on various points made at first instance. For example, the Judge found that an internal email from a CS Trust employee[27] informed CS Trust that it should not “rock the boat” lest Credit Suisse more broadly should lose out on business, and that this "caused CS Trust not to make further inquiries"[28].

The Judge also found that CS Trust had “preferred the importance of Mr Lescaudron in retaining the ‘big client’ ([Mr Ivanishvili]) with the Credit Suisse organisation to the compliance with its core obligation of keeping the Trust [A]ssets safe” and that its tolerance of Mr Lescaudron’s flagrant breaches over a significant period of time “was not in good faith and was unreasonable”[29]. In effect, the Judge found that CS Trust had preferred the business interests of Credit Suisse as a whole over the duties it owed to the respondents. Such a conclusion was amply supported by CS Trust’s witnesses, who testified that had the bank been an unaffiliated third-party bank rather than CS Bank, “CS Trust would have acted to stem the UPAs”[30]. The remedy for the breach of the no-conflict rule was similar to that for a breach of the duty to safeguard.

Ivanishvili on appeal: (ii) the nature of the trustee’s fiduciary duty

The main argument in the respondent’s appeal was that the duty to safeguard was a tortious not fiduciary duty, thus damages would be based on tortious principles and limited by usual principles of causation, foreseeability and remoteness, and therefore losses were limited to the $79m figure. CS Trust’s appeal was a continuation of the policing the perimeter argument and was "premised on the argument that a trustee that has no duties or powers of investment cannot be held liable for bad investments carried out by a third party, even if the trustee is in breach of its duty to safeguard"[31].

The Court of Appeal suggested this was a false dichotomy because “an admission by CS Trust of a breach of its duty to safeguard the trust assets does not preclude a separate finding that it was nonetheless also in breach of its fiduciary duties”[32].

CS Trust relied on the academic commentary referred to in Tan Yok Koon v Tan Choo Suan[33] and said that the duty of honesty and the duty to act in the interests of the principal flow from the no-profit and no-conflict rule. The Court of Appeal firmly rejected this approach and said “it is not the law in Singapore that fiduciary duties are exclusively proscriptive” and “an academic taxonomic exercise should not obscure the substantive content of the duties” and there was no principled basis for circumscribing fiduciary duties in this way[34]. The principles were explained (emphasis added):

“The distinguishing obligation of a fiduciary is the obligation of loyalty, which is, and ought to be, an onerous and exacting standard. The principal relies on the fiduciary to act in their best interests, and the standard expected of a fiduciary is accordingly the highest standard known to the law. The no-conflict and no-profit rule alone are insufficient to vindicate this high standard. The point may be made with an extreme example. A fiduciary cannot be said to be loyal if they intentionally take active steps against the interests of their principal, even if this does not arise from a conflict of interests or in relation to obtaining an unauthorised advantage. To find otherwise is inimical to loyalty as a concept. Accepting CS Trust’s submission that there can be no breach of fiduciary duty without a breach of the no-profit or no-conflict rule would make a mockery of the obligation of loyalty”[35].

However, the Court went further than simply denying the duties were purely proscriptive and introduced the idea of an "adjectival" and "actuating" elements to the duty to act in good faith[36].

Applying this to the duty to safeguard trust assets, the adjectival sense "attaches to and regulates the exercise (or non-exercise) of non-fiduciary powers and duties"[37]. For example, the trustee must properly and in good faith consider the competing interests of different groups of beneficiaries; it is the trustee's conduct which is being assessed here, rather than the nature of any particular outcome the trustee might decide upon. What has attracted attention is the suggestion that the duty of good faith also has an “actuating” element which requires the fiduciary to take positive, affirmative action. The actuating duty is not an entirely new concept; it was hinted at in Royal Brunei Airlines v Tan (our emphasis); "Nor does an honest person in such a case deliberately close his eyes and ears, or deliberately not ask questions, lest he learn something he would rather not know, and then proceed regardless." A specific example is the situation where a fiduciary does not actively place itself in a position of conflict but subsequently discovers the existence of a conflict. In this situation the fiduciary comes under a duty to disclose to their principal as soon as possible[38].

The Court gave the following further example to illustrate the positive duty:

"[T]he trustee stores the gold bullion in a room such that it is left visible to passers-by. The trustee leaves the room unsecured, but does not leave the room. Instead, the trustee watches as a stranger enters the room, and watches as the stranger removes the bullion. The trustee knows that the stranger is not their beneficiary and knows (or must be taken to know) that the stranger is not entitled to take the bullion."[39]

The Court said that the trustee in this situation is obviously negligent in leaving the room unsecured. But on seeing the stranger enter the room and remove the bullion the trustee also comes under a positive duty to take action to protect the bullion and failing to do so involved acting in conscious disregard of the interests of the beneficiaries; this was “nothing short of disloyal”[40] and goes beyond mere negligence. The key element is that “the trustee knows that harm will result to the trust property if nothing is done” [41] and yet consciously, disloyally and/or recklessly chooses not to take any action which might discharge this duty.

But what if facts were slightly different and CS Trust had taken some steps, but they failed to prevent the loss. This question is posed by Tan[42]:

“Suppose the trustee in the example demanded that the stranger leave the room without the bullion, but the stranger responded by verbally abusing the trustee. The trustee backed down in shock and the stranger left with the bullion. In this scenario, would the trustee be in breach of their duty to act in good faith? After all, one could always argue that even though the trustee had acted, it was insufficient because they should have called the Police and locked the door to prevent the stranger from leaving."

Probably the answer is that there is no breach, as earlier in its discussion of the nature of the positive duty the Court stated that "the focus is on whether the trustee should have acted in the circumstances, not on whether the trustee achieved a particular outcome"[43].However, such a value judgment is not clear-cut and would turn on the facts as well as the state of mind of the trustee, as we now examine.

Mental element of the duty of good faith: subjective or objective intent

The duty of good faith requires ‘something more’ than an absence of bad faith[44]. The Court does not immediately substitute its view of what the trustee should have done for what the trustee says or what can be deduced from their (in)actions. Rather, where the trustee’s decision was not objectively in the best interests of the beneficiaries (remembering that we are examining the decision itself, not the outcome), the Court considers whether an "intelligent and honest" trustee could have reasonably believed that, in fact, it was; this is the application of the objective second limb from Ivey discussed above. If the answer is no, this can be used to infer a lack of good faith, and a dishonest trustee will be in breach irrespective of claims about their state of mind.

There may be no breach of duty where the outcome of the trustee’s decision is detrimental to the beneficiaries, as long as the transaction or exercise of discretion was believed to be beneficial at the time and the decision passes the second limb of the test in Ivey. The reasonableness, or otherwise, of the decision is not definitive in itself, but is a signpost to whether the trustee actually held that view.

In summary, the SGCA judgment moves the needle on the scope of trustee duties and clarifies that particular behaviour can be both a negligent (and thus tortious) failure to safeguard trust assets and also breach both the adjectival and actuating elements of the fiduciary duty to act in good faith.

Compatibility with Zhang

There is some discussion of Zhang in the first instance decision but none in the appeal decision. Possibly this is because the facts in Zhang and Ivanishvili are quite different.

• There was no conflict of interests in Zhang, whereas in Ivanishvili there is clear evidence (such as the email from Ms Sampaoli referred to in paragraph 16) demonstrating the conflict of interests between CS Trust and CS Bank which was a cause of the trustee’s inaction;
• The trust deed in Zhang "permitted the trustee to make speculative investments and relieved it of any duty to diversify investments or to maintain the value of the trust assets"[45]. It is unattractive to permit a settlor to reserve investment powers, particularly in such form allowing risky and speculative investments, and then successfully to sue the trustee when those risky investments turn out to be bad. In Ivanishvili the trustee in practice mostly retained that power and the purpose of the trust was to preserve trust assets[46];
• The Letter of Wishes in Zhang used "mandatory rather than permissive language" regarding the trustee's duty to consider the wishes of the settlor, saying their view was "final"; whereas in Ivanishvili the Memorandum of Wishes stated that the trustee "may have regard to" the views of the settlor. There was therefore a greater level of settlor retained powers in Zhang which ultimately assisted the trustee in that case;
• CS Trust admitted liability and therefore accepted that it owed duties in relation to the underlying companies; the issue in dispute was the nature of these duties (tortious as opposed to fiduciary);
• The anti-Bartlett protections in both cases were "relevantly identical"[47] and narrowly avoided purporting to protect against breaches of the irreducible core. However, Ivanishvili involved dishonesty at the company level (which Zhang acknowledged may sit outside such protections), whereas Zhang involved bad investments and so the trustee retained protection;
• The Trustee was held to have actual knowledge or at least to have turned a blind eye to Mr Lescaudron’s fraudulent conduct[48], similarly in Zhang, the trustee was aware but the conduct in question was making poor investment decisions rather than fraud;
• CS Trust’s involvement in the companies was arguably closer and greater than in Zhang, because distributions were made directly from the companies and required the authorisation of officers of CS Trust;
• The focus in Zhang was on the trustee’s gross negligence, rather than a breach of fiduciary duty; and
• Zhang considered that if compensation had been due, it would have been assessed on the reparative basis, not the ‘but for’ restorative basis applied in Ivanishvili, because in Ivanishvili but for the breaches of fiduciary duty by the trustees, the losses would not have happened.

Therefore, whilst the anti-Bartlett provisions in Ivanishvili were almost identical in their wording to those in Zhang, they were not engaged as (a) CS Trustees’ breaches were tantamount to dishonesty in the face of actual knowledge of fraud, which cannot be excluded; and (b) the duty to act in good faith in best interests of beneficiaries cannot be excluded and CS Trust clearly had not acted in good faith.

Conclusion

The adjectival element of the duty to act in good faith is breached by a failure to inform and notify the settlor of the losses, despite being alert to precisely this type of loss happening. CS Trust "deserted its post"[49]. The actuating element of the duty to act in good faith is breached by the failure to intervene and do something to stem them, for example by removing Mr Lescaudron’s access to the accounts. The case appears to impose a positive duty upon trustees to take action when the trustee has knowledge of fraudulent behaviour by an investment manager appointed by an external company which is causing losses to the trust. The trustee cannot sit by and watch losses flow from the trust; they must make enquiries. The narrow concept of trustee fiduciary duties being limited to the no profit and no conflict rule since Tan has been broadened. The duty is to take steps to "protect the interests of the beneficiary[50]". The test for assessing whether the trustee's actions were honest has an objective overlay.

This naturally will create questions for bank-owned trustees considering investing trust funds with their parent bank as to whether a conflict of interests arises automatically and, if so, how breaches of this duty can be avoided[51].

Ivanishvili also poses the question of whether the application of an objective overlay to the definition of 'honesty' (see the discussion of 'policing the perimeter' above) and the inclusion of an actuating duty placed upon trustees widens the scope of the irreducible core. The case shows that conduct (including inaction) which by objective standards does not promote the best interests of beneficiaries will be viewed as incompatible with the duties owed by trustees which are part of the irreducible core. This is in line with the view expressed in Underhill and Hayton that an absence of any actuating duty (although this was not the phrase used) resulted in "the dubious proposition that in order to bring a trust into existence a settlor need not place the trustees under a positive duty to perform the trust terms"[52]. The authors conclude that "A better approach is therefore to start with the principle that a trust cannot exist unless the trustees are accountable for their handling of the trust property to beneficiaries or other parties with enforcement rights, and then ask what mandatory duties are needed to give content to this idea." As Ivanishvili suggests that actuating duties should now be considered part of the irreducible core, it could be said that the its scope has widened.

It will be interesting to note whether the decision in Ivanishvili, which imposes an obligation upon the trustee to take positive action where the assets are at risk, is limited to the (somewhat extreme) facts of the case and the extensive frauds of which the trustee had knowledge, or whether it will be applied more broadly by the courts where lesser risks are posed. Professional trustees may find themselves held to a higher standard that lay ones, with clauses construed more heavily against them, even where anti-Bartlett clauses in modern investment trust vehicles holding shares in underlying companies increasingly move the trustee 'out of the way' save for actual knowledge of dishonesty[53]. Alternatively, a settlor seeking to 'have their cake and eat it' may find their anti-Bartlett clause construed against them to protect the trustee. The decisions in Zhang and Ivanishvili seem to have in common an innate sense of fairness and justice.

There also appears to be an unanswered conflict in circumstances where a trustee whose erstwhile duty to 'ferret around' in the affairs of a company in which they hold a controlling shareholding is excluded by anti-Bartlett clause. Such a trustee is going to find it hard to come by information about fraudulent behaviour. This point is not addressed in Ivanishvili (as CS Trust knew what was going on) nor Zhang (as there was no fraud).

For now, in Zhang and Ivanishvili, we appear to have cases where the legal process has arrived at the ‘right’, or just, outcome in cases at somewhat different (we would not go so far as to say opposite) ends of the spectrum.

Many thanks to trainee George Budd for his help in writing this article.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, October 2025

[1] Tan Yok Koon v Tan Choo Suan [2017] 1 SLR 654 at [192]

[2] Lewin on Trusts at 34-056(c) "The precise scope of the duty binding trustees is not wholly clear. Directors of companies may properly commit their companies to ventures which would be too speculative for trustees to undertake directly, even if within their powers. The interposition of a limited company should not of itself make a difference to the responsibility of the trustees. We consider that where all or a substantial part of the trust property is represented by a controlling holding in a limited company the trustees are bound to see that the company’s assets are administered cautiously. (Given modern investment theory, which emphasises the risk of the portfolio as a whole and not the individual risks of its constituent elements, it may well be different where such a holding is a minor part of the assets of the trust.)"

[3] Some anti-Bartlett clauses operate by creating a positive duty on the trustee not to intervene in the company and leave management of the company in the hands of its directors.

[4] Underhill and Hayton: Law of Trusts and Trustees [51.55] – "However, the trustee does have power to obtain information and to interfere (by virtue of its controlling shareholding) so far as necessary to protect beneficiaries' interests. Moreover, the trustee has an overriding duty to exercise its powers so as to safeguard and further the beneficiaries' interests as a whole. This duty at the core of the trust cannot be ousted to the extent that it permits dishonesty on the part of the trustees…". and at [51.56] "To exclude completely the trustee's power to intervene and replace the directors of the company, the settlor would need to arrange for the company to be created under a foreign law".

[5] Armitage v Nurse [1998] Ch 241 at 253–254

[6] Armitage v Nurse [1998] Ch 241 at 252–253

[7] The Ghosh test has two limbs; (i) was the defendant's conduct dishonest by the ordinary standards of reasonable people? If so; (ii) did the defendant appreciate that his conduct was dishonest by those standards?

[8] Walker v Stones [2001] QB 902 at [127]

[9] Walker v Stones [2001] QB 902 at [134]

[10] The Ivey test for dishonesty also has two limbs; (i) what was the defendant's actual knowledge or belief about the facts; and (ii) was the defendant's conduct dishonest according to the standards of ordinary, decent people. 

[11] Zhang at [64]

[12] Zhang at [44]

[13] Zhang at [61]

[14] Zhang at [34(a)] '(ii) the Trustees shall leave the administration management and conduct of the business and affairs of such company to the directors officers and other persons authorised to take part in the administration management or conduct thereof and the Trustees shall not be under any duty to supervise such directors officers or other persons so long as the Trustees do not have actual knowledge of any dishonesty relating to such business and affairs on the part of any of them'

[15] Zhang at [22]

[16] Ivanishvili Appeal at [21]

[17] Zhang at [61]

[18] First Instance at [422] - ‘The Court of Final Appeal was considering [in Zhang] anti-Bartlett clauses that were relevantly identical to the clauses in the present case’

[19] At first instance [34]

[20] [2023] 5 SLR 59

[21] At first instance [497]

[22] At first instance [575]

[23] Zhang Court of Appeal at [46(1)(a)]

[24] At first instance [498]

[25] [24]

[26] [85]

[27] Ms Sampaoli - a CS Trust employee who worked closely with Mr Lescaudron, see [20] of the appeal judgment

[28] First instance judgment at [378] and [380] and Appeal judgment at [60]

[29] First instance judgment at [576]

[30] UPAs are 'Unauthorised Payments Away' from the trust; an internal Credit Suisse term; at [60].

[31] [27]

[32] At [3]

[33] [2017] 1 SLR 654

[34] At [43]

[35] At [42]

[36] At [46]

[37] At [47]

[38] At [43]

[39] At [52]

[40] At [53]

[41] At [53]

[42] Weiming Tan, Conveyancer and Property Lawyer. 2024, 4, 412-423

[43] At [48]

[44] At [44]

[45] 22 ITELR 603 (h)

[46] First instance judgment at [2] ‘The plaintiff was advised by the defendant and the Bank to use a structure pursuant to which he deposited over US$1.1bn into the custody of the defendant to be placed on trust in “The Mandalay Trust” (or “the Trust”) with the objective of “Inheritance Planning and Asset Holding”.’

[47] First Instance at [422] - ‘The Court of Final Appeal was considering [in Zhang] anti-Bartlett clauses that were relevantly identical to the clauses in the present case’

[48] At [50]-[59]

[49] At [55]-[58]

[50] At [53]

[51] Sophie Holcombe and Jamie Randall, Trusts & Trustees, 2025, 31, 1–6

[52] Armitage & Nurse at [1.81]

[53] LEE, Rebecca and YIP, Man. Exclusion of duty and the irreducible core content of trusteeship: A re-assessment. (2020). Journal of Equity. 10, 131-151.