In September last year, the Royal Court of Jersey handed down what is now widely considered to be a landmark decision in Jersey trust law. Although the decision was handed down in September 2012, excerpts were only recently released to the public; this is due to the scarcity of judgments concerning the role – and removal – of the protectors of a trust.
The detailed background of the case has not been published for confidentiality reasons; however, the matter concerned the application by certain beneficiaries ("the Representor Beneficiaries") of two Jersey trusts for orders removing the protector of each of the trusts, "S", from office.
S'S ROLE AS PROTECTOR
The Court's concerns about S's role stem from the irretrievable breakdown in communications and obvious hostility between S and the Representor Beneficiaries and the fact that the vast majority of the adult beneficiaries wished S to be removed from office. In addition, significant tensions between S and relevant personnel within the trust company came to light during the course of trial.
In the Court's view, the root of the problem
was S's "misconceived view of himself", which was to be the living guardian and enforcer of the (deceased) settlors' wishes. The Court held that, like a Trustee, a Protector's paramount duty is to the beneficiaries of the Trust, and stated as follows:
"It can be no part of the function of a protector with limited powers of the kind conferred on S by the trust instruments to ensure that a settlor's wishes are carried out any more than it is open to a settler himself to insist on them being carried out. A trustee's duty as regards a letter of wishes is no more than to have due regard to such matters without any obligation to follow them. And a protector's duty can, correspondingly, be no higher than to do his best to see that trustees have due regard to the settlor's wishes (in whatever form they may have been imparted): from the moment of his acceptance of the office of protector his paramount duty is to the beneficiaries of the trust."
THE COURT'S JURISDICTION
Although there has been a lack of specific authority directly on point, the Court accepted that it had the requisite jurisdiction to order the removal of a protector. The jurisdiction arose from the fact that the Royal Court had exercised such a jurisdiction twice previously and the fiduciary nature of the office of protector. The guiding principles ultimately adopted by the Court were the same principles applied in the removal of a trustee from office.
The Court affirmed the principle set down by Lord Blackburn in oft-quoted Letterstedt v Broers (1884) 9 App. Case. 371 at 386,387: that the main guide for the courts must be the "welfare of the beneficiaries" and a consideration of whether the continuance of the Trustee (or Protector) "would be detrimental to the execution of the trusts."
The Court made it clear that the jurisdiction was not one "to be exercised lightly".
THE COURT'S DECISION
The Court considered that this was a situation of mutual hostility and distrust between the Representor Beneficiaries and S; the result of this was a breakdown of relations which was having a hugely detrimental effect on the execution of the trusts and was likely to continue to have such effect. The role in which S had cast himself and his perception of this role went "well beyond what was proper for someone in his position"; this led him to insist on playing an overactive part in the management of the trusts, to be reluctant to recognise potential jeopardy to the trusts caused by this over-zealous involvement, and to allow the proceeds of an investment portfolio to remain invested with a bank which was part of the same group as the trustee.
The Court's conclusion was that, despite the fact that S's motivation for the exercise of his role as Protector was bona fide, the only viable solution was for S to cease to hold the office of protector.
This case offers much needed guidance in relation to the role of protector and his or her relationships with both beneficiaries and trustees and the Court's jurisdiction to remove a Protector from office.
We can now be certain that the primary duty of a protector is, like the trustee, the welfare of the beneficiaries. It was also accepted by the Court that the protector also has a duty to ensure that the trustees have due regard to the wishes of the settlor.
It is of note also that the Court found that it was wrong for the trustee to invest assets on deposit with a bank in its group. This is a point which should be considered by all institutional trustees who may be holding a trust's cash deposits within their own banking group.
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.