The “gold (bullion)” standard? A cautionary tale on a trustee’s duties

Singapore Court of Appeal Judgment: Credit Suisse Trust Limited v Ivanishvili, Bidzina and others [2024] SGCA(I) 5

In this article, Tom Williams, Caspar Fraser and Alice Taylor, current paralegal in the team, examine the guidance in the Singapore Court of Appeal judgment, which was handed down in July 2024, seemingly ending a long-running trust dispute between the former prime minister of Georgia and Credit Suisse Trust in that jurisdiction.

Introduction

In a judgment last year, the Singapore Court of Appeal (the Court of Appeal) considered the nature of the tortious and fiduciary duties that a trustee may owe to beneficiaries. In particular, it provided useful guidance on the nature and scope of a trustee’s fiduciary duty to act in good faith and the interaction with the duty to safeguard trust assets.

The judgment was handed down in Mr Ivanishvili’s much publicised dispute with Credit Suisse Trust Limited (the Trustee) in relation to the mismanagement of trust assets between 2006 and 2015 flowing from a fraud perpetrated by a relationship manager of the banking arm of the Credit Suisse group (the Bank). The long-running dispute faced considerable delays from the outset with the first three years of proceedings mired by an ancillary dispute about the appropriate jurisdiction in which to hear the claim (see our previous update here). However, with the Trustee’s substantive appeal against the decision to award Mr Ivanishvili $742.73m being largely dismissed, the dispute seems to have drawn to a close in Singapore.

Factual background

In 2004, Credit Suisse promoted their trust services to the former prime minister of Georgia, Bidzina Ivanishvili (who was also a wealthy businessman) who agreed to their proposal to establish a discretionary trust over assets exceeding $1.1bn (known as the Mandalay Trust). The Mandalay Trust had the objective of “Inheritance Planning and Asset Holding” and was to be for the benefit of Mr Ivanishvili and his family with the Trustee appointed as trustee. The Trustee operated independently from the Bank. A conventional structure was established with two underlying companies, called Soothsayer Limited and Meadowsweet Assets Limited, under the control of the Mandalay Trust. The two underlying companies entered into discretionary portfolio management agreements with the Bank which granted the Bank a mandate and authorisation to manage the assets in investment accounts in Geneva and Singapore.

Between 2006 and 2015, Mr Ivanishvili’s relationship manager at the Bank, Patrice Lescaudron, committed wide-ranging fraud against the trust assets that included the misappropriation of funds, unauthorised (ill-fated) investments, and the use of trust assets to conceal and cover losses in other clients’ accounts, losses which Mr Lescaudron had also caused. To quote the Court of Appeal: “This abysmal state of affairs was allowed to persist unabated until 2015”[1] and, thus, Mr Lescaudron was allowed to act with impunity for over nine years despite never being formally authorised to deal with the trust assets.[2]

The Bank’s internal compliance procedures had raised red flags in relation to Mr Lescaudron’s activity from the beginning of his tenure as Mr Ivanishvili’s relationship manager, but these concerns were in effect ignored or swept under the carpet. The Bank’s internal guidelines required that any unauthorised payments (known internally as Unauthorised Payments Away (UPAs)) be reduced to a minimum, and if identified, be swiftly addressed within 10 working days by obtaining adequate documentation to support the transaction. Mr Lescaudron initiated a large number of UPAs and was asked to provide the supporting documentation, but these requests for documents were never followed up. It was not until February 2012 that the Trustee considered seeking an explanation from the Bank in relation to Mr Lescaudron’s UPAs. However, these investigations were lacklustre (to say the least), and were ultimately dropped after it was suggested that the Trustee should not “rock the boat” lest Credit Suisse lose out on business. The Trustee did not ultimately seek any explanation from or question the Bank. Mr Ivanishvili was never made aware of any suspicious activity in the trust investment accounts.

It was not until 2015 that some of Mr Lescaudron’s investments turned sour and margin calls were triggered on the trust investment accounts, at which point he was removed as relationship manager and the scale of his fraud began to be revealed.

The Trustee’s Duties

In 2023, the Singapore International Commercial Court (the Commercial Court) determined (in Ivanishvili v Credit Suisse Trust Ltd [2023] SGHC(I) 9) that the Trustee had breached its duty to safeguard the trust assets (which was admitted about ten days into the trial) and the no-conflict rule and had concealed matters from the beneficiaries. It awarded the claimants a sum equivalent to the difference between the actual performance of the portfolio and the projected value had it been managed by a competent professional trustee; this sum was calculated to be $742.73m. Of this award, $79 million was attributable to the defalcations with the bulk relating to the equitable compensation owed for mismanagement of the trust assets.

On appeal, the Court of Appeal agreed with the Commercial Court’s findings on liability and was critical of the Trustee’s conduct[3] in failing to safeguard the trust assets from the fraudulent and unauthorised actions of the relationship manager and found that it had preferred Credit Suisse’s own business interests over those of the beneficiaries (ie breached the no-conflict rule).[4] The Court of Appeal also determined that a trustee’s fiduciary duty to act in good faith should be assessed by reference to that trustee’s loyalty to the beneficiary and their “state of mind” when acting, not by measuring the competency with which they perform their role. We look at these findings in more detail below.

Given the Trustee accepted that they had breached their duty to safeguard the trust assets, the primary battleground on the appeal was the nature of the breach. On one hand, the Trustee argued the breach was a tortious breach of its duty to safeguard the trust assets.[5] This would mean that they were liable for the value of the sums misappropriated by Mr Lescaudron, but were not responsible for the investment losses by Mr Lescaudron because under the operative ‘anti-Bartlett’ provisions they had no powers or duties in relation to investment decisions. This in effect would limit the losses to the $79 million attributable to the defalcations. On the other hand, Mr Ivanishvili’s case was premised on the Trustee’s breach of fiduciary duty which supported the larger award made at first instance.

The Court of Appeal gave the Trustee’s argument short shrift:

“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. In our judgment, it is clear that CS Trust was indeed in breach of its fiduciary duties to the respondents with the result that the main focus of this judgment is on the proper quantification of the respondents’ claim.”[6]

The Trustee’s position was also premised on the submission that there are in substance only two core fiduciary duties, the no-profit rule and the no-conflict rule. It argued that “the duty of honesty, the duty to act in the interest of the principal, and the duty of good faith “flow” from both rules.”[7] The Trustee asserted that as neither of these core duties had been breached then they had not breached their obligation to act in good faith.

The Court of Appeal roundly disagreed with the Trustee’s position, finding that the fiduciary duty to act in good faith had been breached as it was a central fiduciary duty that established a Trustee’s loyalty to the beneficiaries:

“The no-profit rule and the no-conflict rule are not exhaustive as to the breadth of fiduciary duties. 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.”[8]

The Court of Appeal considered the nature of the fiduciary duty to act in good faith, finding that it “regulates the performance of non-fiduciary duties or exercise of powers”[9] and “will positively require a trustee to act in circumstances where he knows that the interests of the beneficiaries are at risk of harm.”[10] On the latter, the Court of Appeal gave an example:

“the 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.”[11]

The Court of Appeal went on to provide clarity on the difference between the tortious duty to act with skill, care and diligence and the fiduciary duty to act in good faith. It found that the tortious duty was (in essence) a question of competency; the satisfaction of this duty would be judged against a certain performance threshold. Whereas, in contrast, the fiduciary duty to act in good faith was a question of loyalty, and the fiduciaries’ “state of mind.”[12] The fiduciary had to believe that they were acting in the beneficiaries’ interest:

“The difference lies in the animus: the duty to act in good faith targets disloyalty rather than carelessness. While both entail a scrutiny of the conduct of the person subject to the duty, the duty of care measures their performance against an objective standard of reasonable behaviour, whereas the duty to act in good faith assesses their state of mind in performing. Although there can be overlap between the fiduciary duty to act in good faith and the non-fiduciary duty of care in the factual circumstances of the breach, the distinction is not one of degree but a difference in kind. While a person’s incompetent best efforts might not be enough to discharge the duty of care, what matters to the duty to act in good faith is not competence but that they acted loyally.”[13]

After distinguishing between the two, the Court of Appeal found that the Trustee had been in breach of both their fiduciary and tortious duties. The tortious duty was breached by the failure to competently safeguard the trust assets, and the fiduciary duty was breached because ignoring internal compliance procedures despite concerns being raised was disloyal to the beneficiaries.[14]

As the Court of Appeal was satisfied that both tortious and fiduciary duties had been breached, the Trustee’s appeal was largely dismissed (although there were to be adjustments made to the Commercial Court’s award of $742.73m to derive the revised award).

Conclusion

So why does this matter in the context of the wider trust industry?

Whilst the Trustee’s compliance failings were significant, the explanation of what makes up the duty to act in good faith should act as a crucial reminder for any trustee. If courts are to judge the performance of the duty in the abstract, by reference to questions of loyalty or the fiduciaries’ state of mind, a trustee should act with even greater care and caution, particularly in instances where they have become aware of any mistake or evidence of mismanagement (fraudulent or otherwise) as a poorly thought-out response could have significant financial implications. It is clear that the duty has been developed further by the decision; an “actuating” element exists where a trustee is required to take positive, affirmative action in circumstances where they know that the interests of the beneficiaries are at risk of harm. The decision will also inevitably provide trust practitioners with further fuel for the fire for some of our favoured subjects; namely, trust investments and whether trustees can sleep soundly in the context of the protection afforded by anti-Bartlett clauses. To be continued…

[1] Paragraph 21.

[2] Paragraph 13: “it is important to highlight that Mr Lescaudron was never formally authorised to deal with the Trust Assets.”

[3] Paragraph 19: “To describe CS Trust’s response as desultory or lackadaisical would be charitable.”

[4] Paragraph 60: “Third, in our judgment, CS Trust also breached the no-conflict rule. The Judge found that the effect of Ms Sampaoli’s email was to inform CS Trust that it should not “rock the boat” lest Credit Suisse should lose out on business, and that this caused CS Trust not to make further inquiries: … In effect, the Judge found that CS Trust had preferred the business interests of Credit Suisse 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.”

[5] Paragraph 27: “However, CS Trust’s appeal is premised on the argument that a trustee that has no duties or powers of investment cannot be liable for bad investments carried out by a third party, even if the trustee is in breach of its duty to safeguard the trust assets from misappropriation by that third party. On this premise, CS Trust submits that it did not have a duty to monitor and review the investment decisions and therefore cannot be liable for losses arising from bad or improper investments. According to CS Trust, the duty that it breached was only the duty to safeguard trust assets, a tortious duty of care, such that the ordinary tortious principles apply. CS Trust does not contend that it did exercise reasonable care, but instead relies on this characterisation to import tortious principles and thereby limit its liability and the quantum of compensation to be paid.”

[6] Paragraph 3.

[7] Paragraph 37.

[8] Paragraph 42.

[9] Paragraph 47.

[10] Paragraph 48.

[11] Paragraph 52.

[12] Paragraph 44: “The core fiduciary duty to act in good faith is essential to uphold the concept of the obligation of loyalty.”

[13] Paragraph 49.

[14] Paragraph 53: “In our judgment, the trustee’s conduct in the second situation can be regarded as nothing short of disloyal.”

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

© Farrer & Co LLP, June 2025