The Role of Protectors Examined

The Role of Protectors Examined

In the recent decision In the Matter of the X Trusts [2021] SC (Bda) 72 Civ (7 September 2021)Assistant Justice Kawaley provided guidance regarding the role of the protector in offshore trusts.

The judgment arose against the backdrop of a previous Public Trustee v Cooper blessing Kawaley AJ granted to the trustees to develop preliminary proposals for the future restructuring of the X Trusts which included a 2/3^rd – 1/3^rd division favoured by the “A” branch of the family underlying the trusts and opposed by the “B” branch of the family.

Finalisation of the proposals required the Trustees to obtain the consent of the protectors. A dispute then arose as to the scope of the protectors’ powers. The court had to consider whether on the proper interpretation of the trusts, the power given to the protectors to consent to the exercise of powers vested in the trustees amounted to (i) an independent decision-making discretion (described by the parties as the “Wider View”) or (ii) a discretion to ensure the trustee’s decision is one which a reasonable body of informed trustees is entitled to take (described by the parties as “the Narrower View”). The trustees and protectors took a neutral view on this issue. Branch A of the family supported the Narrower View. Branch B supported the Wider View.

Kawaley AJ found there was little to no admissible evidence relating to the purpose of the protector related provisions which directly supported the contention that the Wider View should be adopted. In summary, he identified the following aspects of the protector provisions (of which consent powers form part), which provided general support for the Narrower View:

• The consent powers themselves were expressed in terms which suggested that the substantive decision-making powers are vested in the trustees.
• The protectors could waive their consent and, where there was more than one protector, in the absence of unanimous consent the requirement for consent fell away.
• The trustees were appointed on terms which included the benefit of the indemnities while the protectors were not. Although no indemnity protections were conferred in relation to even those powers fully vested in the protectors (in particular the power to appoint and remove trustees), those powers did not relate to the day to day operations of the administration of the X Trusts.

Kawaley AJ found that the English case PTNZ v AS [2020] WTLR 1423, Kawaley AJ did not undermine to any material extent his conclusion that the dominant purpose and scope of the Protectors’ role in relation to their consent powers is “to satisfy themselves that the proposed exercise of a power by the Trustees is an exercise which a reasonable body of properly informed trustees is entitled to undertake and, if so satisfied, to consent to the same.”

Based on the iterative approach to construction adopted in Barnardo’s v Buckinghamshire [2018] UKSC 55, [2019] ICR 495 and the contextual analysis adopted in Grand View Private Trust Company v Wong et al [2020] CA (Bda) 6,  Kawaley AJ commented that “unless a contrary meaning can legitimately be discerned in the instrument conferring the relevant consent powers, the usual role of a protector is not to exercise a power jointly with the trustee in relation to the matter requiring protector consent. The protector’s role is to be a “watchdog” to ensure due execution by the trustee of the powers vested in the trustee”.

Kawaley AJ referred to Re Information About a Trust [2014] Bda LR 5 in support of the Narrower View, stating that “the ‘normal’ function of ‘standard’ protector consent clauses appears to be understood by most legal writers as an ancillary power rather than a power exercised jointly with the trustee…clear language would be required to signify the intention of achieving an atypical result in terms of the scope of the consent power conferred”.

Despite rejecting Wider View, Kawaley AJ emphasised that ensuring the trustees properly exercise their important powers is in of itself an important and substantial role. Depending on the content of the proposed action for which protector consent is required, the protectors will be entitled to undertake greater or lesser degrees of independent analysis before deciding whether to grant or withhold consent. In many cases the protectors’ decision (affirmative or negative) will obviate the need for the trustee to seek Court approval. In other cases the protectors’ consent may mean that “blessing” applications can be dealt with in a more economical manner.