Fraud on a power is a well-established trust doctrine and one
that crops up frequently in contentious trust applications both
onshore and offshore. As such, it is always useful to have an
aide-mémoire of the basics and also remind ourselves where,
what may at first appear to be a fraud, is, in fact, perfectly
As per Lewin 29-289:
the donee of a beneficial power may exercise it as he
the donee of a power of any other kind must not misuse it;
where the power is non-fiduciary a person is under no
obligation to exercise it but where they do they must do so for a
proper purpose; and
the donee of a fiduciary power is under an obligation to
consider exercising its power and if it does so it must do so for a
The potential for a fraud on a power therefore does not merely
cover powers of appointment but can be extended to more or less all
powers exercised; amendment, investment, appointment of new
So, when is the donee at risk of perpetrating fraud in
exercising these powers?
Vatcher v Paull  AC 372, at page 378
"The term [fraud] in connection with frauds on a power does
not necessarily denote any conduct on the part of the appointor
amounting to fraud in the common law meaning of the term or any
conduct which could properly be termed dishonest or immoral. It
merely means that the power has been exercised for a purpose, or
with an intention, beyond the scope of or not justified by the
instrument creating the power."
Commonly the claim is that the donee has exercised the power in
favour of some person or purpose who is not an object of the
In Lady Wellesley v Earl of Mornington (1855) 2 K &
J a father who exercised his power in favour of his child who
was seriously ill with the purpose of benefitting himself; as he
would inherit when the child died, was a fraud but contrast with
the case a year later of Beere v Hoffmister (1856) 23 Beav
101 that established the donee can exercise its power to
benefit a child even though the donee is the child's next of
kin and will take such benefit if the child dies.
A more modern example would be a parent seeking an appointment
out of a trust for the benefit of their child when the child itself
is not a beneficiary of the trust. While on the face of it
the proposal appears to be a potential fraud on a power by the
trustee, this is could be alleviated by some moral obligation the
parent has to the child, particularly if he would put himself in a
negative position if the Trustee did not accede to his request for
an appointment to him to be applied for the child's
benefit. It is a benefit to parent if the Trustee agrees to
settle his moral obligation to his child.
Likewise, in the common situation where trustees are asked to
assist the settlement of financial claims on divorce; recent cases
law has made it clear that the trustees can exercise their power in
favour of someone who is not the object of the trust in order to
make it easier for an object to meet their obligations following an
ancillary relief award on a divorce.
Lewin is clear on this point, at 29-299, "an express
arrangement to benefit a person who is not an object will not
itself invalidate the appointment if the purpose is the benefit of
Finally, while reminding ourselves of the basics of this
doctrine it is also worth remembering the consequences; such a
fraudulent exercise of a power will be void in equity not merely
voidable on application. Put simply the exercise will have no
effect on the beneficial interests and they will remain unchanged,
as though the power had not been exercised. It also goes
without saying that a fraud on a power perpetrated by a trustee is
also prima facie a breach of trust.
This article first featured in Private Client
Adviser in April 2016
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).