Europe: Wong v. Grand view & others: the first-instance judgment

In brief

This article discusses the key takeaways to be drawn from the arguments raised during the litigation that serve as a warning to settlors wishing to preserve their family's legacy in perpetuity and focuses on interesting observations arising from the first instance ruling delivered in June 2022.

This article appears in the third edition of the Private Wealth Newsletter 2022.


In more detail

In the last edition of our newsletter, we discussed the Firm's representation of Dr. Winston Wong, a Taiwanese businessman, scientist and philanthropist, in an 80-day virtual trial in 2021.

As readers will recall, Dr. Wong is the eldest son of the late Taiwanese tycoon Wang Yung Ching, a.k.a. Y.C. Wang, who founded Formosa Plastics Group with his brother, Wang Yung-Tsai, in the 1950s. Since Y.C.'s death in 2008, and his brother's in 2014, there has been a considerable amount of litigation and infighting between their numerous heirs over their complex, international estates. The most recent litigation has taken place on the island of Bermuda concerning a number of trusts that were set up there in the final years of the brothers' lives, into which billions of dollars worth of assets were placed.

Most of these structures are non-charitable purpose trusts incorporated under Bermudian statute, namely the Trusts (Special Provisions) Act 1989. They have certain charitable and non-charitable purposes as the objects of their trusts, but no human beneficiaries. The trustee in each case is a private trust company (PTC) incorporated in Bermuda, managed by a small faction of (but, crucially, not all) family members who sit on the boards. These same family members also act as enforcers and protectors, in a somewhat circular arrangement; no professional trust administrator is involved in running the structure. The trust property comprises a web of British Virgin Islands (BVI) companies that in turn hold large amounts of stock in Formosa Plastics and other assets, valued in tens of billions of dollars. The trusts' purposes, as expressed in the trust instruments, include preserving and growing FPG, supporting the economic reforms of the Chinese government and solving all mankind's problems "from the root".

The Wong litigation has already generated a series of judicial decisions on the question of whether a discretionary trust with apparently unfettered powers regarding the addition and removal of beneficiaries still has a "substratum" or "beneficial core" that cannot be amended. The issue, litigated through a different set of proceedings from the main dispute, concerned a Bermudian, irrevocable, discretionary trust known as the Global Resource Trust that was settled to benefit the descendants of Y.C. and his brother. The issue in the substratum case arose because the trustee of the discretionary trust (another PTC controlled by the same small faction of favored heirs) decided to exclude all members of the Wang family as beneficiaries, appoint one of the Bermudian purpose trusts as a beneficiary and distribute all of the assets out to it, with the result that no family member could ever benefit from them. Dr. Wong successfully challenged that decision on summary judgment, a decision that was overturned in the Court of Appeal and that was then appealed to the Privy Council. The Privy Council's judgment is imminent.

The substratum case is — in financial terms at least — relatively minor in the context of the overall dispute. The much larger case concerning the validity of the purpose trusts themselves was the subject of the 80-day trial last year, reported on in the last newsletter.

As explained in the previous article, Dr. Wong attacked the purpose trusts and transfers of assets into them on, among others, the following grounds:

  • He argued that the trusts should be set aside owing to a fundamental mistake, because, based on the facts, Y.C. did not understand that, once the purpose trusts had been created, they could not be changed to enable his family to benefit. Dr. Wong relied on the fact that his father personally received no independent legal advice (astonishing given the value of the transactions involved), the fact that the trust documents were in English (a language he could not read, speak or write) and the involvement of certain heirs and employees in whom he placed trust and confidence.
  • Dr. Wong also argued that the Bermudian legislation does not permit a purpose trust for both charitable and non-charitable purposes: one has to choose between a non-charitable purpose trust and a charity, and the separate regimes that apply thereto.
  • He further argued that the stated purposes of the trusts were verbose and unclear. Therefore, they failed the statutory test for certainty, which is that purposes must be sufficiently clear for trust to be carried out.
  • He further argued — in a fascinating foray into the history of the settlement of the BVI — that the transfers into the trusts of shares in the BVI companies should be set aside for failure to comply with the Statute of Frauds 1677, which, according to Section IX, requires transfers of equitable interest to be in writing.

The judgment of Assistant Justice Kawaley was delivered in June 2022. It is 471 pages long and 191,407 words in length. By contrast, J.R.R. Tolkien's Fellowship of the Ring is a mere 187,790 words; and if the judgment were a Harry Potter book, it would be the third longest in series. This article is therefore necessarily confined to a few interesting observations on the first-instance ruling.

First, the judge dismissed the "mixed purposes" argument in short order. He found that it was perfectly possible in Bermuda to have a trust for both charitable and non-charitable purposes trusts. He observed that Bermuda's legislation was intended to be welcoming to and easily accessible by foreign investors; it was not intended to set traps for the unwary draftsperson.

Secondly, on the uncertainty case, the judge agreed that some of the purposes in the trust instruments were, on their own, uncertain, but he applied a liberal test to whether or not that invalidated the trusts. He asked whether it is possible to tell whether a proposed application of funds is within the purposes or not, and, if it is not, does that uncertainty make it impossible to implement the entire trust? It is difficult to identify the justification for such a low bar in the statutory scheme, or to draw support for it by through an analogy with case law on traditional beneficiary trusts, because (as it was argued) it is surely fundamental to a trust's validity to know whether a particular person (or proposed purpose) is within the beneficial class or not. However, the judge again linked his reasoning back to his view of Bermuda as an open and investor-friendly jurisdiction, uninterested in creating vehicles of merely limited use by wealthy, international families. 

Thirdly, the Statute of Frauds argument raised the question on whether or not the legislation from the year 1677 formed part of BVI law or not. The parties agreed that this could be at least partly answered by identifying when in history the BVI could be said to have been established as a British colony, because as a matter of law it would have been taken to have inherited English law as it then stood. Therefore, if the BVI were settled after 1677, the Statute of Frauds would have been absorbed into their legal system, but if they were settled before this law was passed by the parliament in London, then the statute would apply in Britain only. At trial, the question was explored via expert evidence from two Caribbean historians about the complicated and convoluted history of the Leeward Islands, of which the BVI forms part. In his written ruling, the judge found that the BVI were established after 1677, so the statute applies and Section IX requires transfers of equitable interest in BVI shares to be in writing. This should have rendered the impugned transfers in this case as invalid for want of written authority from the equitable owners of the shares (i.e., Y.C. and his brother), but the judge's application of the statute to the facts is more than a little obscure – it is expected to be clarified by an appellate court.

The end result was that most of the trusts were upheld. One of them, set up secretly after Y.C.'s death, was unsurprisingly set aside on the basis that Y.C.'s estate administrator did not consent to the transfer (none having been appointed). Appeals have now been filed, so this story is not yet over. Whatever the final chapter says, the Wong saga will stand as a cautionary tale for settlors who wish to preserve their family's legacy in perpetuity but decide, for whatever reason, to be less than forthright with their living relatives about their grand plans.

Copyright © 2024 Baker & McKenzie. All rights reserved. Ownership: This documentation and content (Content) is a proprietary resource owned exclusively by Baker McKenzie (meaning Baker & McKenzie International and its member firms). The Content is protected under international copyright conventions. Use of this Content does not of itself create a contractual relationship, nor any attorney/client relationship, between Baker McKenzie and any person. Non-reliance and exclusion: All Content is for informational purposes only and may not reflect the most current legal and regulatory developments. All summaries of the laws, regulations and practice are subject to change. The Content is not offered as legal or professional advice for any specific matter. It is not intended to be a substitute for reference to (and compliance with) the detailed provisions of applicable laws, rules, regulations or forms. Legal advice should always be sought before taking any action or refraining from taking any action based on any Content. Baker McKenzie and the editors and the contributing authors do not guarantee the accuracy of the Content and expressly disclaim any and all liability to any person in respect of the consequences of anything done or permitted to be done or omitted to be done wholly or partly in reliance upon the whole or any part of the Content. The Content may contain links to external websites and external websites may link to the Content. Baker McKenzie is not responsible for the content or operation of any such external sites and disclaims all liability, howsoever occurring, in respect of the content or operation of any such external websites. Attorney Advertising: This Content may qualify as “Attorney Advertising” requiring notice in some jurisdictions. To the extent that this Content may qualify as Attorney Advertising, PRIOR RESULTS DO NOT GUARANTEE A SIMILAR OUTCOME. Reproduction: Reproduction of reasonable portions of the Content is permitted provided that (i) such reproductions are made available free of charge and for non-commercial purposes, (ii) such reproductions are properly attributed to Baker McKenzie, (iii) the portion of the Content being reproduced is not altered or made available in a manner that modifies the Content or presents the Content being reproduced in a false light and (iv) notice is made to the disclaimers included on the Content. The permission to re-copy does not allow for incorporation of any substantial portion of the Content in any work or publication, whether in hard copy, electronic or any other form or for commercial purposes.