Private client update - December 2021 – 3 / 4 观点
Where a power vested in trustees can only be exercised with the consent of a protector, what is the role of the protector? Two recent cases have considered this question with the relevant courts coming to differing conclusions:
one finding that the protector's role is limited to asking whether the relevant decision of the trustees is one which a trustee could reasonably arrive at - meaning that if the trustees' decision is within their powers and is rational, the protector has no choice but to consent; and
the other finding that the protector is to exercise an independent discretion in deciding whether or not to consent - with the result that the protector is able to withhold consent to the proposed exercise of the trustees' power even if the proposed exercise of that power is one which a reasonable body of properly informed trustees could take.
It is increasingly common for offshore trusts (and some UK trusts) to make provision for a 'protector'. A protector is a person who is not a trustee but who is given powers under a trust. The role of a protector is usually considered to be to monitor, oversee or control the administration of the trust by the trustees. In particular, it is common for a protector to be appointed where a third party or institutional trust company is appointed as trustee (as opposed to family members or a private trust company) often with the idea that this will give the family a level of control over the trust, or ensure that there is someone who knows the family who has oversight of the trustees' actions or who the trustees can consult with when considering the exercise of certain powers.
The power most commonly given to a protector is the power to appoint and remove the trustees of the trust. In addition, it is common to provide that the trustees must obtain the protector’s consent (usually in advance and in writing) before they exercise certain powers, for example, their powers to add or remove beneficiaries, make distributions of capital, amend the terms of the trust or make certain investment decisions (eg dispose of shares in a family company or a particular 'trophy' asset or borrow or lend).
Two recent cases – In the matter of the X Trusts (Supreme Court of Bermuda) and in the matter of the Piedmont Trust & the Riviera Trust (Royal Court of Jersey) – have considered what role a protector plays where a power vested in trustees can only be exercised with the consent of the protector.
The 'opposing' views advanced in the two cases were:
The only material difference between the facts in the two cases is that in the matter of the Piedmont Trust & the Riviera Trust the trusts in question provide for an indemnity for the protector. In both cases, the powers of the protector are considered to be fiduciary powers.
The only previous decision on the point - PTNZ v AS & Ors (2020) EWHC 3114 – found that the protector’s powers of consent were independent of the powers of the trustees and were to be exercised by the protector on the basis of their own discretion, such that the protector could withhold consent even where the trustees' decision was reasonable and rationale.
In the matter of the X Trusts (which involved trusts governed by Bermudian law, English law and Jersey law) the Court took the Narrower View.
The Court accepted that the dictionary meaning of “consent” was “agreement or permission”, which implied an element of choice. However, it found that the roles of the trustees and that of the protector are fundamentally different and that the protector's consent powers play an ancillary role to that of the substantive powers vested in the trustees. The Court held that taking the Wider View would result in a duplication of roles elevating protectors to the de facto status of co-trustees.
In reaching this decision the Court found that the protector's consent powers must be construed as part of the protector provisions as a whole, and noted, in particular:
It was submitted that taking the Narrower View limited the protector's role to something similar to the role of the court in a blessing application. The Court rejected the suggestion that this meant the protector role added nothing, finding that it provided the beneficiaries with a less expensive and time-consuming option and was in real-life terms a very substantial power enabling the protector to review the trustees' decisions, communicate to the trustees their own views and merits as to a proposed course of action and enter into discussions with the trustees on the proposed course of action.
In the matter of the Piedmont Trust & the Riviera Trust the Jersey Royal Court rejected the Narrower View arguing that “…if the role of a protector was simply to review the trustee’s decision in the same way that the Court would do, his role would be almost redundant; he would bring nothing to the table that the Court itself would not bring on a blessing application.” In the Court's view if the protector’s role was essentially the same as that of the court, “…the key requirement for a protector would be a legal qualification rather than knowledge of the settlor’s wishes and sound judgment as to what is in the best interests of particular beneficiaries.” Rather, the Court found that, in practice, a protector is chosen because they have personal knowledge and understanding of the settlor, their wishes, and the family's circumstances and the settlor must be taken to have intended that the protector should exercise their own independent judgement in exercising their powers. In the Court's view taking the Wider View did not allow the protector to substitute their own view for that of the trustees, but neither was the protector confirmed to a simple yes or no in response to a request for consent. The protector and the trustees should work together in the interest of the beneficiaries and it was reasonable for the protector to discuss proposals with trustees, explain any concerns they may have and even suggest modifications. The Court found that: “A protector may often find that they should consent to a discretionary decision of a trustee on the basis that it is for the benefit of one or more of the beneficiaries even though, if they had been the trustee, they might have made a different decision which they thought to be even more beneficial."
In light of these conflicting decisions, and in the absence of clear express wording in a trust signifying the status of a protector's consent powers, a court will look to construe the consent powers in the light of the wider protector provisions and the trust terms as a whole, and the intentions of the settlor. Whichever view you take, protectors and trustees should seek to work together to ensure the trustees' powers are being exercised in the best interests of the beneficiaries in the light of the family's circumstances and the settlor's wishes. In drafting a new trust, or where protector provisions are being introduced into a trust or existing protector provisions amended, it would be wise to consider these alternative views as to the status of protector consent powers and ensure the drafting is clear, reflects the intentions and understanding of the settlor and other relevant parties, and is workable in practice.