Jersey: The Role of the Protector of a Jersey or Guernsey Trust

Last Updated: 7 September 2005
Article by Paul Matthams and Billy Grace

1. Protectors

It is not unusual for a settlor to wish to exercise a degree of control over trustee activities. One can understand such a desire in a case where, for example, shares in a settlor's family company are to be held in trust, or where the settlor does not know his intended trustees. In these circumstances the settlor may require some assurance that his original intentions in setting up the trust will be fulfilled.

There are various methods for providing a degree of control and these methods may involve:

  • requiring trustees to obtain the consent of someone else before being able to exercise certain powers; or
  • giving certain specific powers to persons other than the trustees, such powers often including powers to appoint and dismiss trustees and powers of appointment over trust assets.

Both these methods involve a party other than the settlor being able to exercise a degree of control or influence over the trustees. The person who is usually called upon to exercise this function is known as the "protector". Commonly, the protector will be a trusted friend or relative of the settlor but may also be a professional advisor.

What is a protector?

Protectors are largely an offshore phenomenon, but there is no statutory definition of a protector in Jersey or Guernsey law. Some jurisdictions have attempted a definition - in the Cook Islands International Trust Act of 1984 a protector has been defined as:

"a person who is the holder of a power which, when invoked, is capable of directing the trustees on matters relating to the trust and in respect of which matters the trustees have a discretion and includes the person who is the holder of the power of appointment or dismissal of trustees".

While this definition may cover a person holding specific powers it does not cover very adequately the more common case where an individual's consent is required before the trustees can undertake certain activities.

Article 24(3) of the Trusts (Jersey) Law 1984 (the "Jersey Law") states:

"The terms of a trust may require a trustee to obtain the consent of some other person before exercising a power or a discretion."

Article 24(4) of the Jersey Law states:

"A person who consents as provided in paragraph (3) shall not by virtue of so doing be deemed to be a trustee."

Whilst this statutory reference covers the "consent" type of protector it does not cover at all the holder of powers. It is interesting to note that Section 28(2) of the Trusts (Guernsey) Law, 1989 (the "Guernsey Law") states:

"The terms of a trust may require a trustee to consult or obtain the consent of another person before exercising any function".

In addition to making a specific reference to a requirement to consult, the Guernsey Law indicates that such consultation or consent may be required before exercising any function. This is clearly much wider than just the exercise of a power or a discretion. However, since Article 24 (3) of the Jersey law is not prescriptive, it is perhaps a difference without any significant consequences.

When seeking a definition we have to adopt an amalgamation of the statutory references to which we have referred and can perhaps define a protector as:

  • a person whose consent may be required by trustees under the terms of a trust to the exercise of certain powers and discretions vested in them; and
  • a person other than the trustees who, under the terms of the trust, is given powers which may include powers of appointment over trust assets and powers to appoint and remove trustees

What are the powers and rights of a protector?

One of the fundamental differences between the concept of the protector and that of the trustee is that there is no statutory list of the protector's powers and rights. Instead, the protector's role, rights and powers will be dictated by the terms of the trust instrument concerned. What the protector can do will, in other words, be decided entirely by the extent of his, her or its powers under the trust instrument, and any other document which contains any trust terms.

Typically, the powers of the trustees to which a protector may be asked to consent may include: -

  • Power to appoint capital or income;
  • Power to add or exclude beneficiaries;
  • Power to terminate the trust;
  • Power to shorten the trust period;
  • Power to change the proper law;
  • Power to alter the trust; and
  • Power to invest (for instance, in a particular class of investments), especially where a family business is concerned.

In many cases, however, a settlor may take a view that the protection he or she seeks is sufficiently provided by limiting the powers by which consent is required to the appointment of capital and/or income and/or the power to add or exclude beneficiaries.

What are the duties and liabilities of a protector?

The appointment of a protector in order to provide a degree of control over the trustees of a trust will normally give rise to a fiduciary relationship between the protector and the beneficiaries of the trust and therefore the protector will owe a duty of care to the beneficiaries of the trust (note, such a duty is not owed to the settlor, unless the settlor is also a beneficiary). When a protector's consent is required to the proposed exercise by a trustee of certain of its powers, the protector must consider whether the proposal is in the best interests of the beneficiaries. This may present difficulties when a proposal is to the advantage of one beneficiary but to the disadvantage of another.

As far as the exercise of a protector's "active" power is concerned, the protector's duties will be threefold, namely:

  • a duty to consider from time to time whether to exercise the power;
  • a duty to make a proper survey of the objects of the power; and
  • a duty to consider the appropriateness of any exercise of the power.

In addition, it is clear that the protector must not exercise that power for an improper or collateral purpose.

In the recent Jersey case of Mourant -v- Magnus [2004] JRC 056 the Royal Court held that:

"A protector is in a position of a fiduciary and the Court must have power to police the activities of any fiduciary in relation to a trust whether he be called a protector or indeed by any other name. Such a jurisdiction is a necessary incident of the duties to protect the interests of beneficiaries, especially minor and unascertained beneficiaries, and to ensure that the wishes of the settlor are respected as far as may be possible and appropriate."

This judgment suggests that all protectors are fiduciaries, no matter what their powers may be or whether the settlor intended them to be in a fiduciary position. However, on the facts of this case, it was necessary to confirm that the protector was a fiduciary in order to enable the court to exercise its inherent power to remove an allegedly unsuitable protector from office. It does not appear from the judgment that submissions were made to the Court on the subject of whether all protectors are fiduciaries and it remains to be seen whether the Court will uphold this broad statement in the future.

Summary

It is to the particular trust instrument that one must turn to establish the precise nature of the role that the protector is to perform. Both trustees and protector must familiarise themselves with any powers that are expressed to require protector's consent. If consent is required, it must be obtained if the power is to be validly exercised.

In most cases the protector will be a fiduciary who will owe a duty of care to beneficiaries.

Recent News

2. Revised Edition Of The Laws Of Jersey

A revised edition of the written laws of Jersey (the "revised edition") came into force on 1 July 2005 pursuant to provisions contained in the Law Revision (Jersey) Law 2003. The revised edition is an authorised restatement of the laws of Jersey in force as at 31 August 2004. Laws which have been amended over the years have been consolidated, spent or out of date provisions have been removed and certain words and expressions in enacted legislation have been made "gender neutral".

The revision and consolidation process means that in many Laws and Regulations article and paragraph numbers have been changed. The Trusts (Jersey) Law 1984 is no exception and the attached briefing note lists the changes.

References to articles of the Trusts (Jersey) Law 1984 in other parts of this edition of Link-Up are to the articles as numbered in the revised edition.

3. EU Savings Tax Directive

Bilateral agreements on the taxation of savings income between each of Jersey and Guernsey and EU member states came into force on 1 July 2005.

Background

On 3 June 2003, the EU formally adopted Council Directive 2003/48/EC on the Taxation of Savings Income (the "Directive"). The preamble to the Directive states that its ultimate aim is to enable savings income in the form of interest payments made in one EU member state to individuals resident in another member state to be made subject to effective taxation in accordance with the laws of the latter member state 1 .

The member states were concerned that so long as the USA, Switzerland, Andorra, Liechtenstein, Monaco, San Marino and the relevant dependent or associated territories of the member states did not all apply measures equal to, or the same as, those provided for by the Directive, capital flight towards these countries or territories could imperil the attainment of the Directive's objectives. For this reason, the EU sought to conclude agreements with the countries and territories concerned that provide for the objectives of the Directive to be met within those countries and territories from the same date as within the member states.

Whilst the ultimate aim of the Directive is to bring about effective taxation through the exchange of information between member states concerning interest payments, the Directive allows three member states 2 to adopt a withholding tax for a transitional period. The same option was extended to the non-EU jurisdictions referred to above, including the Crown Dependencies of Jersey, Guernsey and the Isle of Man.

The authorities in Jersey and Guernsey worked closely together with the other Crown Dependencies in reaching agreement with the EU member states. The outcome of the negotiations was two model agreements, one between each of Jersey and Guernsey and those EU member states that have adopted automatic exchange of information and one between each of Jersey and Guernsey and the three member states that have opted for a withholding tax. These model agreements have been approved by the legislature in each Island and have been the basis for the individual agreements (the "Agreements") signed between each of Jersey and Guernsey and each of the member states and the specific insular legislation required to bring the Agreements into effect.

The text of the Agreements follows that of the Directive in large part but with appropriate adaptations and the inclusion of provisions for the suspension or termination of the Agreements if certain events come to pass. In addition, to distinguish the Island from the EU member states and to reflect the fact that the Islands are not part of the European Union and are not subject to the Directive, the term "retention tax" is used rather than "withholding tax".

Jersey and Guernsey have agreed to adopt the retention tax option during the transitional period and to apply automatic exchange of information from the end of the transitional period. The rate of retention tax is 15% during the first three years of the transitional period, 20% for the subsequent three years and 35% thereafter. 25% of the retention tax deducted in accordance with the bilateral agreements will be retained and the remaining 75% will be transferred to the other contracting party.

Guidance Notes

The authorities in Jersey, Guernsey and the Isle of Man have each agreed to a form of guidance notes (the "Guidance Notes") to accompany their respective insular legislation that is required to bring into effect the agreements with each of the member states.

The Guidance Notes should be considered by banks, registrars, custodians and other financial institutions that make interest payments or distributions from certain collective investment schemes to individuals in the member states. They may also be of interest to financial dealers and securities houses which purchase money debts or units in collective investment schemes from individuals and businesses and those who hold or administer money debts and investments in collective investment schemes on behalf of individuals.

A copy of the Jersey Guidance Notes can be obtained by visiting www.policyandresources.gov.je

Footnotes

1. Current member states of the EU are the UK, Ireland, France, Germany, Luxembourg, Belgium, The Netherlands, Italy, Spain, Portugal, Greece, Austria, Sweden, Finland, Denmark, Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia.

2. Austria, Belgium and Luxembourg

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
24 Oct 2018, Conference, St Peter Port, Guernsey

The Fund Finance Association is a non-profit industry association in the fund finance market that aims to educate members, legislators, regulators and other constituencies about the fund finance market.

13 Nov 2018, Conference, St Peter Port, Guernsey

SuperInvestor is part of the SuperReturn Series - the world's leading private equity events.

6 Dec 2018, Conference, St Peter Port, Guernsey

The definitive funds event of the year will include insights and predictions from over ten industry experts from both the Channel Islands and Europe

 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions