In the matter of the K Trust (December 2015)
In this case, the beneficiaries of the trust made an application to the Royal Court of Jersey to remove the protector from office. The relationship between the primary beneficiary, the settlor’s widow, and the protector, a close friend of the settlor, had broken down and the protector refused to retire. The trustee acknowledged that until a new protector was appointed the trust would be unworkable in the circumstances.
The protector, the person appointed to protect the interests of the beneficiaries, was found not to be doing so in this case and was removed from office by the Court.
The Isle of Man Court, in Rawcliffe v Steele [1993-95] MLR 426 , commented that a protector must bona fide consider the exercise of his powers from the point of view of the beneficiaries under the trust. This view was followed in the Channel Islands.
In considering the removal of a protector, the Guernsey and Jersey Courts (in Re A Trust  JRC 169A the Royal Court of Jersey confirmed that the jurisdiction to remove a protector is analogous with the jurisdiction to remove a trustee and operates on the same principles), have considered the welfare of the beneficiaries and the proper administration of trust as paramount factors in reaching their decision. The Court confirmed that it was not a jurisdiction to be exercised lightly. The Court further affirmed previous authorities that friction and hostility is not itself a reason for removal.
In Rawcliffe v Steele, the Court held it might only appoint a replacement protector if it is necessary to prevent the trust from failing. This view was rejected in Guernsey in the K Trust case where it was held that the Court had a wider jurisdiction in relation to the appointment and removal of protectors. The Isle of Man Court faced with an application of this nature in the future, in light of the recent authority, may well (subject to the facts of the case) be inclined to extend its jurisdiction in this regard.
A protector’s powers and rights are primarily derived from the trust deed itself. The nature of a protector’s role and his responsibilities are determined on a case by case basis with careful consideration of the terms of the trust deed in each instance.
A protector considered to be acting in a fiduciary capacity will usually be entitled to an indemnity from the trust fund for his expenses in absence of an express provision in the trust deed. However, this is not a hard and fast rule and is subject to the usual exceptions and the facts of each case will be considered on their merits. Please click here to see our news item on this issue.
In the representation of Jasmine Trustees Limited & another  JRC 196
The Guernsey Court considered the validity of an exercise of a fiduciary power. The power in question was the power to appoint a protector. Instead of looking to remove the protectors on the basis of their conduct, the beneficiaries requested the court to consider the validity of their appointment.
The Court considered whether the appointor (the settlor) had reached a decision (in appointing his two sons as protector) that no reasonable appointor would have made.
The Court held the appointment to be invalid on the following grounds:
- there was a conflict of interest (the beneficiaries (children of the settlor) were on opposing sides of ongoing litigation);
- there was a lack of independence (the father (the settlor) was a very controlling character who influenced other members of his family); and
- there was an irretrievable breakdown of the relationships between the parties.
Appointors, in exercising their powers, need to consider their duties carefully. Remembering their obligations to act in good faith and only consider relevant factors. Any ulterior motives behind their decision may cause their choice to be challenged in the future.
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