The scope of protector powers has been the source of considerable judicial scrutiny in different Courts in recent years, which has created uncertainty for trustees and protectors alike, with judgments in Jersey, Bermuda, England and now, most recently, Cayman in Kawaley J's judgment In the Matter of the B Trust.
The central issue has been where a power vested in trustees can be exercised only with the consent of the protector, whether a protector should merely ensure that a trustees' decision is valid (the "narrow view") or whether a trustee should exercise an independent decision-making discretion (the "wider view").
In In the Matter of the B Trust, Kawaley J blessed a "momentous decision" to appoint assets to a new trust that specifically embraced the "wider view". This is the first time, since the judgments mentioned above, that the Courts have accepted that the question of whether the wider or narrower view should apply can be specifically addressed through careful drafting in the trust deed.
Previous decisions – a divergence across jurisdictions
The two most prominent cases to consider the wide vs narrow issue were the Jersey case In the Matter of the Piedmont Trust & Riviera Trust [2021] JRC 248 and the Bermudian case Re the X Trusts [2023] CA (Bda) 4 Civ.
In the Piedmont case, Sir Michael Birt found that the function of a protector was a wide one and advocated for a full and open discussion between trustee and protector. The Court found that the role of a protector did not extend to the protector substituting their view for that of the trustee, but it was not confined to providing consent (or otherwise) to a proposed course of action.
In the later appeal in Re the X Trusts however, the Bermuda Court of Appeal favoured the narrow view in relation to the role of the protector. This upheld the first instance decision of Kawaley J which (just) preceded the decision in Piedmont but by the time the matter came before the Court of Appeal, the Jersey decision had been handed down and was considered by Gloster JA who found that it was not binding on court and was not correct. Gloster JA therefore declined to follow the Jersey Court decision and found that, applying the meaning of the express language in the protector provisions, the trustees were responsible for administering the trust and that the protector was more akin to a watchdog or enforcer.
Summary
In In the Matter of the B Trust, the trustee made an application for the Court's blessing of a transaction which was considered momentous, as well as declaratory relief in relation to historic distributions by a predecessor trustee. The trustee was seeking to appoint the assets of the trust to a new trust.
The proposed changes to the existing structure included dispensing with the duplicative (and costly) role of the management committee whose functions were provided by a professional investment advisor; clarifying the dispositive provisions of the trust and that the trust deed explicitly referred to the wide powers of consent of the protector.
Kawaley J, in considering the protector consent provisions, noted that "the scope of a Protector's power of consent, whether wide and unfettered or narrow (being limited to blocking irrational or unlawful decisions) has been controversial of late" and went on to note that the new trust deed contains an "elegant example" of how to avoid uncertainty through clear language, adopting the proposed wide protector consent provisions.
What does this mean for the future?
The judgment may help ensure there is certainty in relation to the scope of protector powers in newly drafted trusts, through careful and considered drafting, although this may be limited in scope to consent provisions.
One possible consequence may be an increase in cases where the parties to older trusts seek clarity on the scope of the protector powers.
We would advise that trustees should take active steps to review their trust instruments with this in mind. Similarly, current protectors should ensure they fully understand their function and role alongside their trustees.