The background to Re Jasmine was an application by the Trustees for a blessing of its momentous decision to terminate the Trusts and to distribute out the assets amongst the beneficiaries in various specified proportions against the history of significant disputes between the various beneficiaries (which had resulted in a number of previous applications to and decisions of the Royal Court).
As to the role of a protector there were two broad issues;
- Provision of documents and information to a protector; and
- The role of a protector where its consent was required.
Provision of documents
The Trustees had in fact made two proposals for termination and distribution. In relation to their first proposal, the Trustees had refused to supply their detailed reasoning to the Protector, and the Protector thus subsequently refused to consent to the Trustees proposal.
The Court noted that there was no judicial authority as to what information and documentation should be provided to a protector in such circumstances. The Court however held that as a protector owed fiduciary duties to the beneficiaries in reaching its decision as to whether to consent or veto a Trustees proposal, the principles as to the provision of documents to an incoming trustee (as set out in Ogier Trustee (Jersey) Limited v CI Law Trustees Limited [2006] JRC 158) were of equal application to protectors.
In other words, a protector had to have access to such documents and information as was reasonably necessary for it to fulfil its duties (to determine whether to consent or otherwise). The Court found on the facts of the case, given the acrimonious dispute between certain of the beneficiaries and the fact that the Trustees were departing from the Letters of Wishes, that the Trustees were obliged to have supplied to the Protector the detailed reasons for their earlier proposed decision.
Role of Protectors
It was contended that the role of a protector in determining whether to exercise its power to veto or consent to a trustees’ decision (where such a power existed) was essentially the same as that of the Court in a blessing application, and was merely concerned with the rationality of the trustees’ decision. In other words, if the trustees had reached a decision which a reasonable trustee could have arrived at, having taken account of relevant considerations and ignoring irrelevant matters, the protector was bound to consent.
The Royal Court noted that no authority was provided in support of such a proposition, and had no hesitation in rejecting it. In the Court’s view the protector’s role was different to that of the Court. The Court had of course not been chosen by the settlor as trustee, and its role was necessarily a mere supervisory one.
On the other hand, a protector had been chosen by the settlor who would have often specified various matters where the protector’s consent was expressly required. It was thus reasonable to infer that the settlor intended that the protector should exercise its own judgment in exercising the powers given to it. Moreover if the role of a protector were simply to review the trustees’ decision in the same way as the Court would ultimately do, the protector’s role would be almost redundant.
Unusually, after the conclusion of the hearing, but before judgment had been formally handed down the Royal Court’s attention was drawn to the decision of the Supreme Court of Bermuda in Re The X Trusts.
The issue before the Bermudian court was in essence the same as that before the Royal Court, namely whether the provisions for a protector’s consent in the trust deed conferred an independent decision-making discretion on the protectors (the Wider View) or merely a discretion to ensure that the trustees’ substantive decision was a valid and rational one (the Narrower View).
The Court in re X determined that the Narrower View was to be preferred for various reasons including the fact that in the Court’s view the Narrower View reflected the proper construction of the protector’s consent powers in that the role of a protector was not to exercise the power jointly with the trustee but it was rather to be a “watchdog” to ensure the proper execution by the trustee of its powers. Further the Court did not accept that the Narrower View had the result of the protector’s role being a limited one, it holding that ensuring that the trustees properly and rationally exercised their powers was an important and substantial role.
The Royal Court in a postscript carefully considered the Judgment in Re The X Trust but disagreed with its conclusions.
It accepted that the role of a protector was not to exercise a power jointly with the trustee but did not accept that this conclusion supported the Narrower View rather than the Wider View.
Further and more substantively the Royal Court concluded that on the Narrower View the protector’s role was a fundamentally limited one as the protector would simply be fulfilling the same role to that of the Court. If the trustees’ decision were a rational one the protector would be helpless to intervene regardless of whether he believed the trustees’ decision was wrong in terms of the interests of the beneficiaries as a whole.
Conclusion
The position is thus that we now have two important reasoned judicial authorities as to the role of the protector in exercising its power of veto or consent. Unfortunately those two decisions are in conflict with each other! The issue will clearly need to be resolved in due course in the interest of the offshore trust world generally. The position in Jersey for the moment is clear in that the Wider View is to be preferred, and protectors thus have a significant and considerable role to play in supervising trustees’ decisions, which may be a factor settlors may wish carefully to consider. A close eye will, however, have to be kept over any likely developments in this area in the future.
(Advocate Robertson appeared for one of the adult beneficiaries in Re Jasmine).
