After the court ordered the appointment of receivers over the two bank accounts involved in her family trust, Zhang Lan and her affiliated company SETL simultaneously filed appeals. On June 27, 2023, the Singapore High Court Court of Appeal issued its final judgment, dismissing the appeal. Thus, the Zhang Lan family trust case has been settled.

The author’s team previously published a professional analysis article on April 24, 2023, regarding the first-instance judgment, titled “Offshore Trust ‘Lightning Rod’ Guide — Also on Equitable Interpretation of the ‘Piercing’ Judgment of Ms. Z’s Offshore Family Trust”, pointing out that the legal basis for the judgment was not “excessive settlor control” or “settlor power boundaries” as claimed by popular articles, but rather “resulting trust.” The article also suggested that only by accurately understanding the judgment’s legal reasoning could one further comprehend a new type of legal risk highlighted by this case—“the risk of missing asset delivery formalities under复合 asset trusts in common law jurisdictions.”

In the final judgment, the Court of Appeal very clearly stated that the legal basis for resolving this dispute was “resulting trust.” This article will provide an equitable re-interpretation of the Zhang Lan family trust case based on the final judgment, aiming to help readers deeply understand the “heart of trust law” in Anglo-American trust law—resulting trust—and the new type of legal risk this case warns about for offshore family trusts.

I. New Facts and Reasons in the Final Judgment

Let us briefly review the main arguments of Zhang Lan’s side at first instance: (1) The equitable ownership of the bank account funds was transferred together with the shares of SETL to the trustee of the family trust; (2) The two W-8BEN forms submitted to the banks showed SETL as the beneficial owner of the bank account income; (3) At the time the funds were transferred out of Zhang Lan’s personal bank account, her beneficial interest was transferred to Mr. Wang; (4) The failure to timely remove Zhang Lan as the sole signatory of the bank accounts was due to delays by the consulting company.

The main dispute in the first instance was “whether the equitable ownership of the bank account funds was still retained by Zhang Lan.” The first-instance judge found that the defenses and evidence provided by Zhang Lan and SETL were insufficient, and that the balance of evidence demonstrated that Zhang Lan had retained the beneficial interest in the assets, thus ruling against her.

(I) New Facts and Reasons Raised by Zhang Lan and SETL on Appeal

On appeal, Zhang Lan and SETL raised new facts and arguments based on the trust documents, classic trust law treatises, and a Hong Kong court judgment on contempt of court. These can be summarized into three points:

1. Based on the content of the trust documents, the intention behind establishing the trust, and the establishment process, Zhang Lan’s intention was indeed to divest herself of the beneficial interest in the account funds for the benefit of Wang Xiaofei and his descendants.

2. The classic trust law treatise Lewin on Trusts contains a view supporting their position: “If a trust is created to acquire property through a holding company owned by the trust, and the settlor provides purchase funds for the holding company to acquire the property, the court will tend to infer that the settlor intended the holding company to be the equitable owner of that property.”

3. The Hong Kong court’s criminal judgment had already found that it could not be proved beyond reasonable doubt that Ms. Zhang was the beneficial owner of the assets.

In her appeal submissions, Zhang Lan argued that the first-instance judge erroneously framed the issue as “whether she retained the beneficial interest in the assets.” The correct question, she contended, was “whether the assets placed in the express trust were intended to benefit her son and his descendants.” This can be understood as a diversionary litigation strategy—Zhang Lan’s primary aim was to direct the appellate court’s attention to the content of the trust documents. If the second argument regarding Lewin on Trusts could be accepted by the Court of Appeal, combined with the specific provisions of the trust documents, it would demonstrate that the equitable ownership of the bank account funds had been transferred to SETL.

(II) Detailed Analysis of the Appellate Issues by the Court of Appeal

The Court of Appeal first clarified that the substantiveissue on appeal was the same as at first instance: “whether Ms. Zhang is the beneficial owner of the assets.” It then conducted a more detailed and rigorous analysis of the disputed facts than the first-instance judgment, from the perspectives of the trust document content and the post-execution conduct and attitudes of the parties, while also responding to each new fact and argument raised by Zhang Lan on appeal.

1

Analysis of Classic Trust Law Treatise Views and Precedents

SETL cited the view from the classic trust law treatise Lewin on Trusts: “If a trust is created to acquire property through a holding company owned by the trust, and the settlor provides purchase funds for the holding company to acquire the property, the court will tend to infer that the settlor intended the holding company to be the equitable owner of that property.” SETL argued by analogy that Ms. Zhang must have intended SETL to be the equitable owner of the assets she had transferred into the bank accounts.

The Court of Appeal found that the above view from Lewin on Trusts was of limited assistance to SETL. The footnote to this view in the treatise cited the Nightingale case from the All England Law Reports (SETL had also cited this precedent at first instance, see first-instance judgment paragraph 52, but the first-instance judge did not respond to it). In Nightingale, Justice Blackburn opined: “Where an individual decides to purchase property in a company’s name and provides the funds, particularly when the company is under the individual’s control, the proper and natural inference is that the company should be both the legal and beneficial owner of the money and property.”

However, the Court of Appeal then cited two later precedents that did not appear to readily draw the inference suggested by Justice Blackburn in Nightingale:

(a) In Iwuanyanwu, Justice Engelhart held that the beneficial interest remained with the defendant because there was no practical reason to explain why the defendant would wish to transfer the beneficial interest to the company.

(b) In NRC, Justice Dicker questioned Justice Blackburn’s view on the “proper and natural inference,” preferring the view that “each case ultimately depends on its facts”; Justice Dicker also noted that Iwuanyanwu illustrates the broader rule that the question of beneficial ownership ultimately depends on the facts of each case.

Regarding the application of precedent, Singapore judicial practice has a rule: “When a judge agrees with a precedent, it is not a matter of stare decisis, and the judge has the right to explore and apply relevant precedents from common law jurisdictions provided they consider the principles established in those precedents can be effectively adopted in Singapore.” (Wang Tao, 2018) After exploring the above precedents, the Court of Appeal held that, ultimately, determining “whether the transferor truly did not intend the transferee to benefit” still requires investigation based on the facts of the case, weighed against all available evidence. (See final judgment paragraphs 40-43)

2

Trust Documents

In the first-instance judgment, the judge did not conduct an in-depth analysis of the Zhang Lan family trust documents. In the final judgment, the Court of Appeal found that the Zhang Lan family trust documents did not explicitly refer to assets on their face; Schedule 2 of the Trust Declaration provided that the “Trust Fund” comprised only a nominal USD 10. The trust documents did not explicitly address the transfer of bank account funds. Additionally, apart from the settlor’s power to remove the protector, the trust documents did not grant Zhang Lan any other residual powers.

The Court of Appeal found that the Trust Declaration outlined the powers exercisable by Ms. Zhang as settlor, Asia Trust as trustee, and Mr. Wang as “protector” (and together with his descendants as beneficiaries of the SE family trust), providing the typical backdrop for assessing the subsequent conduct of Zhang Lan and SETL.

3

Post-Execution Transfers

(1) Zhang Lan’s Lack of Reasonable Explanation for Four Transfers into Her Own Account

Between June 2014 and February 2015, among seven transfers from the Credit Suisse (CS) account, four were made directly to Zhang Lan’s account. For two of these, Zhang兰 explained they were paid for the benefit of her son, Mr. Wang. However, the Court of Appeal found this explanation evasive, as there was no正当 reason to first transfer the money into Zhang Lan’s account. For the other two transfers, Zhang Lan stated she could not find relevant documents or recall their purpose. The Court of Appeal found it difficult to accept that she could not recall the purpose of such significant amounts.

The Court of Appeal agreed with the first-instance judge’s inference that the natural inference was that Ms. Zhang directed these transfers for her own benefit.

(2) Lack of Evidence That Trustee Asia Trust Directed the Four Transfers

The Court of Appeal found no evidence that Zhang Lan’s transfers from the CS account between June 2014 and February 2015 were made pursuant to instructions from Asia Trust. Indeed, Zhang Lan did not claim she was following Asia Trust’s instructions. Asia Trust likely did not even know the bank accounts existed.

If the beneficial ownership of the assets had indeed been transferred, and if Asia Trust had assumed its duties as trustee in managing those assets, with Zhang Lan acting only in her limited capacity as CS account sole signatory and SETL director, she could not have unilaterally completed those transfers.

After comprehensive analysis, the Court of Appeal found that the CS transfers between June 2014 and February 2015 strongly demonstrated that, despite the trust arrangement, Ms. Zhang intended to retain the beneficial interest in the assets when establishing the trust.

4

Different Reactions to Court Freezing Orders

(1) After Learning of the Freezing Order in March 2015, Zhang Lan Made Urgent Transfers from the DB Account

On February 26, 2015, LDV applied for and obtained a freezing order from the Hong Kong High Court Court of First Instance. On March 4, 2015, Zhang Lan instructed Deutsche Bank (DB) to make transfers, with payment instructions marked “URGENT.” Neither Zhang Lan nor SETL explained in their evidence why these transfers had to be made so urgently. LDV also provided evidence to the Court of Appeal that Zhang Lan knew of the Hong Kong freezing order before the March 2015 DB transfers.

The Court of Appeal found that when Ms. Zhang hastily instructed the transfers on March 4, 2015, having received the Hong Kong freezing order only the day before, it could be inferred that she was concerned the Singapore accounts might also be subject to similar freezing orders. Thus, the Court of Appeal agreed with the first-instance conclusion that this urgency reflected Ms. Zhang’s subjective attitude that the assets were hers, rather than transferred to Mr. Wang and his descendants or to SETL for that purpose.

(2) SETL Did Not Challenge the Freezing Order for Seven Years

Another fact reflected in the evidence was that after the bank accounts were frozen by the Singapore freezing order, SETL took no action. By the time of the court hearing, approximately seven years had passed without SETL taking any action to challenge the Singapore freezing order. SETL explained that it knew Zhang Lan was applying to discharge the Hong Kong freezing order and believed that if successful, the Singapore freezing order would also be discharged. The Court of Appeal found that SETL had no valid reason for allowing Zhang Lan to oppose the Singapore freezing order; if SETL indeed had absolute ownership of the assets, it should have challenged the freezing order itself, not Zhang Lan.

The Court of Appeal found that SETL’s prolonged inaction led to an inexorable inference that even SETL itself did not believe it had absolute ownership of the assets, and therefore saw no need to seek discharge of a freezing order that only targeted assets directly or indirectly owned by Zhang Lan (see final judgment paragraph 64). SETL’s later介入 suggested that at the time of the SETL share transfer or new director appointments, Zhang Lan did not timely inform the new shareholders or directors about the bank accounts (see final judgment paragraph 70).

5

Reed Smith Richards Butler Letter

In the first-instance judgment, a letter from Reed Smith Richards Butler, the law firm engaged by Zhang Lan at the time, to Deutsche Bank was a key piece of evidence for the first-instance judge’s finding that “the equitable ownership of the bank accounts was not transferred and remained with Ms. Zhang.” Notably, from an evidentiary perspective, Reed Smith was Ms. Zhang’s agent. Under Sections 17 and 18 of the Evidence Act 1893, their confirmation in the letter that Zhang Lan retained the DB account constituted an “admission” (see first-instance judgment paragraph 56), and thus became a primary basis for the first-instance court’s judgment against Zhang Lan.

In the final judgment, although the Court of Appeal agreed with the first-instance judge’s findings regarding the Reed Smith letter, it downplayed the probative value of this “admission” evidence, changing it from a decisive role at first instance to an auxiliary role on appeal. The Court of Appeal found that “other circumstantial evidence, such as the March 6, 2015 letter, while not decisive for factual determination in itself, helps strengthen the conclusion.” (See final judgment paragraph 87)

The final judgment’s characterization of the Reed Smith letter as “circumstantial evidence” that “does not play a decisive role” objectively extricated Reed Smith from the professional liability risk of being sued by its client due to the first-instance judgment’s “admission” characterization of its letter.

The Court of Appeal, based on detailed analysis of objective facts such as the bank transfers and the parties’ differing reactions to freezing orders, was able to sufficiently prove the facts directly based on the evidence of the case itself, without relying on the “admission” effect of the lawyer’s letter. This demonstrates the Court of Appeal’s diligent and rigorous work attitude, which also rescued Reed Smith from danger.

6

Hong Kong Contempt of Court Judgment

On March 14, 2017, LDV obtained leave from the Hong Kong High Court Court of First Instance to commence committal proceedings against Zhang Lan, alleging she had breached the Hong Kong freezing order. On March 14, 2018, the Hong Kong High Court ruled that LDV had not proved Zhang Lan was the beneficial owner of the assets, and therefore she was not responsible for dissipating assets in breach of the Hong Kong freezing order. However, Zhang Lan was found in contempt for failing to disclose all her assets in Hong Kong valued at HKD 500,000 or more.

On appeal, Zhang Lan used this judgment as a key piece of evidence, arguing that the Hong Kong High Court’s findings on the beneficial ownership of the disputed assets supported her appellate arguments. Zhang Lan particularly emphasized two conclusions from the Hong Kong criminal judgment: “the trustee may have been prepared to allow and agree to Ms. Zhang continuing to act as signatory on SETL bank accounts” and “it was reasonable and credible that she acted as signatory on SETL accounts pursuant to the trustee’s instructions.”

However, the Court of Appeal found that the evidentiary value of the Hong Kong judgment for the disputed facts in this case was limited. This was because the Hong Kong judge’s task was to determine whether Ms. Zhang was liable for contempt for dissipating assets in breach of the Hong Kong freezing order, which required a higher standard of proof—“beyond reasonable doubt.” Specifically, “whether it could be determined beyond reasonable doubt that Ms. Zhang had beneficial interests in SETL” is clearly a higher standard than the “balance of probabilities” standard applied by the Singapore High Court in this civil case. Therefore, the Hong Kong High Court’s findings must be viewed from the perspective that the higher standard of proof did not apply in this case.

After analysis, the Court of Appeal found that the views in the Hong Kong judgment were insufficient to overturn the first-instance judge’s correct conclusion on beneficial ownership. Moreover, based on the factual details in the Hong Kong judgment, if that judge had applied the “balance of probabilities” standard, they might have reached a different conclusion on the beneficial ownership issue.

7

Bank Documents

Among the main evidence submitted by Zhang Lan and SETL at first instance were two “W-8BEN forms” submitted to the banks on February 11, 2014, indicating SETL as the beneficial owner of the bank account income. The first-instance judge found that the evidentiary value of the W-8BEN forms was counterbalanced by other evidence.

The Court of Appeal, after carefully analyzing the specific content of the various bank documents in this case, concluded: “On balance, we accept that the W-8BEN forms provide some evidentiary support for SETL’s contention that Ms. Zhang intended to give up the beneficial interest in the assets. However, this evidence must be weighed against the significant events that occurred after the transfer of SETL’s sole share on June 4, 2014. In this regard, we agree with the first-instance judge that the preponderance of evidence contradicts the inference drawn from the W-8BEN forms.”

8

Summary on Beneficial Ownership of Assets

After analyzing the above main facts, reasons, and evidence item by item, the Court of Appeal ultimately concluded that the first-instance court’s finding that Ms. Zhang intended to “retain beneficial ownership and not transfer the funds to SETL” was not erroneous.

Unlike the first-instance judge’s approach of treating the Reed Smith letter as key evidence, the Court of Appeal primarily relied on the subsequent conduct of Zhang Lan and SETL after the trust documents were executed to determine the key disputed fact that “the beneficial interest in the account funds remained with Ms. Zhang.” Other evidence, such as the Reed Smith letter, were considered merely auxiliary circumstantial evidence by the Court of Appeal.

The Court of Appeal found that the collective probative force of the above facts and evidence (including circumstantial evidence) outweighed any contrary inference drawn from the trust documents and/or the W-8BEN forms.

II. The Legal Basis of the Final Judgment Remains Resulting Trust — A Unique Trust Law Rule in the Common Law System

(I) “Automatic Resulting Trust” and Its Application Scenarios

1

Automatic Resulting Trust and Its Value

Where a settlor attempts to establish a trust for the benefit of third-party beneficiaries, and although legal title has been transferred, they fail to successfully divest or transfer the equitable interest, equity treats this as giving rise to a resulting trust. This is the legal basis for this case’s judgment.

Resulting trust is a perplexing equitable doctrine, with different scholars holding different views on how resulting trusts should operate or be understood (Hudson, 2020, p.197).

Currently, the academic and judicial practice in common law systems predominantly adopts Megarry J’s classification of resulting trusts into two categories: presumed resulting trusts and automatic resulting trusts. There is less controversy over presumed resulting trusts, which are generally accepted as applying to two scenarios: (1) gratuitous transfer of property to another; (2) purchase of property in another’s name.

Automatic resulting trusts arise from the application of the equitable maxim “equity abhors a vacuum in beneficial ownership.” However, how does this equitable maxim develop into an equitable rule? Many scholars have discussed the justification for automatic resulting trusts. In the context of automatic resulting trusts, equity faces the question: when property is vested in trustees upon trust, but that particular trust fails to exhaust all beneficial interests (or the trust is invalid), what then? In such circumstances, equity chooses the rule that a resulting trust in favor of the creator arises (Mitchell, 2018, p.293).

In fact, the renowned English legal historian Maitland captured the essence of this type of resulting trust (automatic) in one sentence over a century ago: “In law, since I have vested property in A upon trust, if there is no other beneficiary, I must be the beneficiary myself or my personal representative.” (Maitland, p.79)

Thus, automatic resulting trusts are essentially the application rule of the equitable maxim “equity abhors a vacuum in beneficial ownership” in the trust field. So, what specific situations give rise to this rule?

2

Application Scenarios for Automatic Resulting Trusts

In jurisdictions such as the US and Australia, resulting trusts are considered “remedial” like constructive trusts, typically applied by courts as a remedy at the plaintiff’s suit. However, the traditional English law view is that resulting trusts are institutional rather than remedial. They are considered institutional because they arise only in certain recognized specific situations (Gallagher, 2020, p.286).

As to the specific situations giving rise to automatic resulting trusts, academic opinions vary. Virgo succinctly summarizes the application scenarios for automatic resulting trusts as “total or partial failure of an express trust” (Virgo, 2018, p.355). Sarah Wilson, who emphasizes the importance of legal formalities for transferring equitable interests, lists several situations where defective transfers of equitable interests give rise to resulting trusts, including a scenario similar to the Zhang Lan family trust case: “There are certain formal requirements for transferring equitable interests. If the transfer formalities are imperfect, the settlor has not lost the equitable interest, thus a resulting trust arises” (Wilson, 2015, pp.152-153).

Professor Stephen Gallagher of the Chinese University of Hong Kong Faculty of Law provides a more comprehensive summary, incorporating recent judicial precedents on resulting trusts, categorizing the application scenarios for automatic resulting trusts into three types:

(1) Failure of an express trust or gift;

(2) Failure to dispose of the entire beneficial interest in property;

(3) Where property is transferred for a purpose that fails, e.g., the Quistclose trust and surplus funds. (Gallagher, 2020, p.290)

(II) Unique Application of Resulting Trust in the Zhang Lan Case

1

Methods of Applying Automatic Resulting Trusts in Individual Cases

Automatic resulting trusts, as their name suggests, typically apply automatically as a legal consequence of trust failure when a trust is found invalid or set aside by a court. The vacuum in beneficial ownership arising from such trust failure is automatically filled by a resulting trust. This is the general method of applying automatic resulting trusts.

However, as Professor Gallagher’s comprehensive summary of application scenarios shows, vacuums in beneficial ownership can arise in situations beyond trust invalidity or setting aside. Therefore, automatic resulting trusts apply not only in cases of trust invalidity or setting aside but also in situations where the equitable interest has not been fully transferred due to defects in transfer formalities, or other circumstances that may lead to a “vacuum in beneficial ownership.”

Thus, in the latter type of cases, whether “the equitable ownership has been transferred” or “whether the equitable ownership is still retained by the settlor” may become the judge’s focus. If the plaintiff can prove that “the equitable ownership is still retained by the settlor,” then a resulting trust is established—meaning that although a trust was created, the beneficiary of the trust remains the settlor.

In judicial practice, proving “failure of an express trust” is often much easier than proving “failure to dispose of the entire beneficial interest.” Therefore, the usual method of applying automatic resulting trusts is to prove the failure of an express trust. For example, Virgo suggests that the concept of “failure to dispose of the entire beneficial interest” has caused numerous difficulties for judges and commentators. A more reasonable view is to focus on the failure of the express trust. When the constituent elements of the express trust are not satisfied, this constitutes initial failure; when the express trust has been validly established but is subsequently terminated for some reason, this constitutes subsequent failure. Both situations will give rise to surplus property (Virgo, 2018, pp.355-356).

However, in some cases, the available evidence is insufficient to prove fraud, sham, violation of mandatory legal norms, or other grounds for trust invalidity or failure, but the evidence proving that “the equitable interest was not transferred out or remains with the settlor” is relatively strong. The Zhang Lan family trust case is such a case. In these circumstances, the judge will choose to apply the resulting trust rule directly, focusing on the constituent elements for establishing a resulting trust.

2

In the Zhang Lan Family Trust Case, the Judge Chose to Apply Resulting Trust Directly

In paragraph 36 of the final judgment, before the Court of Appeal commenced its thorough analysis and reasoning on the core issue of “whether Ms. Zhang is the beneficial owner of the assets,” it first provided a detailed explanation of the legal principles applicable to the core dispute from three aspects:

(a) Explained that courts set aside express trusts and impose implied trusts on property, typically applied only as a last resort;

(b) Explained the definition of resulting trust (which falls under implied trusts): “A resulting trust arises when a transferor transfers property to a transferee in circumstances where the transferor did not intend the transferee to benefit,” and how to determine the transferor’s intention;

(c) Citing precedents, listed the two factual elements giving rise to a resulting trust: (1) transfer of property to the transferee; and (2) circumstances where the transferor did not intend the transferee to benefit.

Additionally, from the final judgment’s table of contents, from the issue “WHETHER MDM ZHANG IS THE BENEFICIAL OWNER OF THE ASSETS” to the conclusion “SUMMARY ON BENEFICIAL OWNERSHIP OF ASSETS,” the views, evidence, and facts analyzed and discussed by the Court of Appeal—including trust law treatise views, precedents, trust document content, the parties’ behavioral reactions and attitudes regarding bank transfers and freezing orders, the Hong Kong criminal judgment, the Reed Smith letter, bank documents, etc.—all centered around the core issue of “whether Ms. Zhang is still the beneficial owner of the assets,” with no mention of fraud, sham, or other issues affecting the validity of the express trust.

In summary, the Singapore High Court and Court of Appeal did not determine whether there was trust fraud or sham trust, nor did they explore the cause of trust failure. Instead, they ultimately adopted a method of ascertaining key facts meeting the criteria for recognizing a resulting trust, applying the resulting trust directly.

III. A New Type of Risk Warning: Risk of Missing Asset Delivery Formalities Under Composite Asset Trusts

Although the Singapore High Court and Court of Appeal did not directly否定 the legal validity of the Zhang Lan family trust or directly declare it invalid or set it aside, the judgment appointing receivers over the bank accounts means the Zhang Lan family trust has failed. The court may not need to explore the reasons for trust failure when directly applying resulting trust, but the offshore family trust practice community needs to carefully analyze and summarize the real reasons for the failure of the Zhang Lan family trust to avoid repeating the same mistakes.

In the author’s analysis article on the first-instance judgment, it was pointed out that cognitive misalignment caused by jurisdictional differences was the main reason hidden behind the facts of the Zhang Lan family trust case, leading to the failure of her family trust.

(I) Cognitive Misalignment from Jurisdictional Differences is the Main Reason for the Vacuum in Equitable Interests in the Zhang Lan Case and the Application of Resulting Trust

In common law systems, trust legal relationships involve dual ownership—legal ownership and equitable ownership—which differs from the单一 ownership concept in Chinese law, resulting in different legal thinking for transactions.

Regarding this case, from Zhang Lan’s courtroom defenses and the trust law treatise views cited by her attorneys, it can be seen that during the establishment of the Zhang Lan family trust, Zhang Lan and her consulting company, following the固有 thinking and cognition of domestic law, mistakenly believed that “transferring SETL shares to Asia Trust meant the automatic transfer of the Credit Suisse and Deutsche Bank accounts opened in SETL’s name.” Under domestic law, this understanding is logically unproblematic.

However, under the dual ownership concept and rules of common law jurisdictions, “completing the transfer of company shares does not mean the company’s accounts are automatically transferred.” A trust constituted over company shares does not necessarily extend to the company’s assets. In this case, Zhang Lan established a trust over composite assets including SETL shares and the bank accounts under SETL’s name in a common law jurisdiction. If only SETL shares were transferred to Asia Trust, this only meant the transfer of legal ownership of the Credit Suisse and Deutsche Bank accounts opened under SETL’s name; the equitable ownership of the two bank accounts was not completed.

Zhang Lan argued in both the first and second instances that delays by the consulting company resulted in the failure to timely change bank documents such as the sole signatory of the bank accounts. The author believes that Zhang Lan’s argument that “her professional advisors were unprofessional and delayed relevant procedures” was not a临场 fabrication by her attorneys for defense. It reflects to some extent that “cognitive misalignment caused by jurisdictional differences” objectively existed and indeed delayed the timely perfection of procedures for transferring equitable ownership of the two bank account assets.

Therefore, the Zhang Lan family trust “piercing” case warns the offshore family trust practice community of a new type of risk: the need to pay special attention to asset delivery formalities under composite asset trusts in common law jurisdictions.

(II) Offshore Family Trusts Must Pay Special Attention to Asset Delivery Formalities Under Composite Asset Trusts in Common Law Jurisdictions

Anglo-American jurists, based on the jurisprudence of trust historical development, advocate that the essence of a trust lies in the分割 of property rights—the rights in trust property are divided into two: legal ownership belonging to the trustee and equitable ownership belonging to the beneficiary, with both trustee and beneficiary enjoying trust property ownership. Under this dual ownership system in common law jurisdictions, the requirements for property ownership transfer procedures also differ significantly from domestic law. The disposition of equitable interests requires consideration of corresponding formal requirements and equitable effect.

Taking English law as an example, Section 53(1)(c) of the Law of Property Act 1925 specifically provides that all dispositions of equitable interests must be in writing and signed by the disposing party or their authorized agent. There are also numerous domestic cases in the UK, such as Grey v. IRC, where a disposition of equitable interests was merely by oral instruction rather than valid written form, resulting in the court declaring it invalid.

“Equitable rights in property are far less certain than legal rights, and are thus more vulnerable. Therefore, requiring written records of transfers of beneficial interests between different legal persons helps to show where these interests actually arise and who actually holds them.” (Wilson, 2015, p.106) British scholar Sarah Wilson’s words explain the significance of formalities for transferring equitable interests.

In the Zhang Lan family trust case, the settlor and her consulting company, limited by domestic legal thinking and固有 cognition, mistakenly believed that “a trust over company shares automatically extends to company assets” or “completing share transfer means the accounts under the company name are automatically transferred.” This cognitive misalignment caused by jurisdictional differences was the main obstacle to the timely, legal, and effective transfer of equitable ownership of the bank account assets.

The legal basis of the final judgment in this case and the judge’s rigorous reasoning also remind high-net-worth individuals in China that when establishing offshore family trusts in common law jurisdictions, they must review the transaction arrangements from the perspective of dual ownership. They must not only emphasize the legal formalities at the time of trust establishment but also pay special attention to the legal formalities for the actual delivery of various properties that have become trust property, ensuring the timely, legal, and effective completion of the full transfer of ownership of trust property.

References:

1. He Baoyu: Principles and Precedents of Trust Law, China Legal Publishing House, 2013.

2. Gao Lingyun: The Misunderstood Trust — Trust Law Theory, Fudan University Press, 2010.

3. Wang Tao: How Singapore Courts Follow Precedent, People’s Court Daily, June 15, 2018.

4. [UK] Maitland: Maitland’s Lectures on Equity and Trusts, Wu Zhicheng trans., Law Press, 2022.

5. [UK] Virgo: The Principles of Equity and Trusts, Ge Weijun et al. trans., Law Press, 2018.

6. [UK] Mitchell: Constructive and Resulting Trusts, Zhang Songlun trans., Law Press, 2018.

7. [UK] Gallagher: Equity and Trusts: A Centuries-Long Achievement, Leng Xia trans., Law Press, 2020.

8. [UK] Hudson: The Great Debates in Equity and Trusts, Shen Zhaohui trans., Law Press, 2020.

9. [US] Halbach: Gilbert Law Summaries on Trusts, Zhang Xuemei trans., Law Press, 2017.

10. Gary Watt, Trusts and Equity, 5th Edition, Oxford University Press, 2012.

11. Philip H. Pettit, Equity and the Law of Trusts, 12th Edition, Oxford University Press, 2012.

12. Sarah Wilson, Todd and Wilson’s Textbook on Trusts and Equity, 12th Edition, Oxford University Press, 2015.