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The Royal Court of Guernsey has confirmed its jurisdiction to remove fiduciaries from a trust where their continued involvement obstructs its proper administration.
This decision reinforces the Court's willingness to intervene when relationships break down and fiduciary duties are compromised.
Background: The Billevese Trust
The Royal Court's decision in In the Matter of the Billevese Trust considered whether Class A Protectors should be removed following a serious deterioration in relations with the sole discretionary beneficiary and life tenant (the Applicant). The Trust, settled by the Applicant's grandmother, included two classes of protectors: Class A and Class B. Under the Trust instrument, the Applicant had no power to remove Class A Protectors.
After the original beneficiary's death, the Trustee reviewed the Trust's investment strategy to reflect the Applicant's significantly different tax profile. The Trustee proposed changes to the investment management approach, which led to conflict with the Class A Protectors. The Protectors had personal interests in the investment management companies and resisted the changes.
As relations worsened, the Applicant requested that the Class A Protectors be removed and replaced with a protector agreed upon by the Applicant and the Trustee. The Class A Protectors refused, arguing that removal was not in the Applicant's best interests and asserting that their fiduciary powers under the Trust instrument gave them authority to resist.
Legal principles
The Court reaffirmed principles established in In the Matter of the K Trust. Its inherent jurisdiction to remove fiduciaries, including protectors, is based on two key considerations:
- The welfare of beneficiaries
- The competent administration of the trust
Importantly, the Court confirmed that misconduct is not required
for removal. A fiduciary may be removed where their actions have a
"seriously detrimental effect" on the execution of the
trust and are likely to continue. This principle applies equally to
protectors and trustees because the jurisdiction flows from the
fiduciary nature of their office.
In this case, the Deputy Bailiff found that the Class A Protectors
had failed to recognise their duties to the Applicant and had
prioritised their own interests. Their handling of the termination
of the investment management retainer and subsequent conduct left
the Applicant feeling "completely disregarded, disrespected
and undermined in favour of the Class A Protectors' interests
and others who have no real connection to the trust." The
Court concluded that there was an irretrievable breakdown in
relations, which was detrimental to the trust's execution. On
that basis, the Class A Protectors were removed and replaced.
The role of protectors
The judgment also touched on the ongoing debate about the scope of a protector's consent function, which has been the subject of recent offshore cases. Two competing approaches dominate:
- Wide view: A protector exercises independent judgment and may withhold consent even if the trustee's proposed action is reasonable.
- Narrow view: A protector only ensures that the trustee's decision is one a reasonable body of properly informed trustees could make.
The Bermudan case of In the Matter of the X Trusts (currently on appeal to the Privy Council) preferred the narrow view, while the Jersey case of In the Matter of Piedmont Trust & Riviera Trust favoured the wide view. In the Billevese decision, the Guernsey Court declined to rule on which approach it would adopt, noting that the issue before it was whether the breakdown in relations was harming the trust's administration and whether removal was necessary. The Court emphasised that determining the scope of a protector's powers was not required to resolve the matter.
Why this matters
This case is significant because it confirms that Guernsey
courts will act to remove fiduciaries, including protectors, when
their involvement impedes the proper execution of a trust. It also
illustrates that removal can occur without evidence of misconduct,
provided the breakdown in relations is irretrievable and
detrimental to the trust's administration.
The question of whether Guernsey will adopt the wide or narrow view
of a protector's powers remains open. This issue is likely to
be clarified in future proceedings or by guidance from the Privy
Council in the X Trusts appeal. Until then, fiduciaries
should be mindful that their duties are owed to the beneficiaries
and that failure to act in their best interests can lead to
removal.
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.
