Jersey court rules protectors have general power to veto trustee decisions
Its decision in Re Piedmont Trust and the Riviera Trust (2021 JRC 248) is an important case for trustees, holding that protectors will usually be entitled to veto a trustee's decision even if a court would not have done so.
The case arose in respect of two trusts with the same beneficiaries, both of whom agreed that the entire trust assets distributed to them but did not agree as to the amounts. The trustees put forward various proposals and, as protector consent was required under each trust, the question arose as to the protector's precise role in respect of those proposals. The protector had vetoed one of the proposals.
Some of the beneficiaries opposed the protector's intervention. They argued that the protector only had the same powers as a court would have, in other words to verify that the trustee's decision was one that reasonable trustees properly instructed could arrive at. If so, they argued, the protector could not veto it.
The Court summarily rejected that argument, noting that the protector had been nominated by the settlor and was thus not in the same position as the Court. It ruled that protectors will usually be entitled and required to form their own judgement on a trustee's decision, rather than simply review whether the trustee's decision has been reached properly. The trustee is thus obliged to provide the protector with all relevant information, including reasons, to enable the protector to make that judgement in light of all the relevant circumstances. However, the protector does not have full discretion whether to veto the trustee's decision, said the Court. Their role is only to decide whether the trustee's proposal is for the benefit of the beneficiaries, even if the protector might have made a different decision.
The decision disagrees with the Supreme Court of Bermuda's (the Supreme Court) recent decision in the X Trusts case (2021 SC Bda 72 Civ). The core issue there was, again, whether the trusts' provisions gave the protectors an independent decision-making discretion or merely a discretion to ensure that the trustees' substantive decision is a valid and rational one. The Supreme Court preferred the view that the protector's role is merely that of ‘watchdog,’ limited to reviewing the trustee's decision by asking only whether it was a decision that a reasonable, properly informed trustee could have reached.
The Court acknowledged that its ruling would increase the risk of deadlock where trustees and protectors take different views. However, it considered that that could not be avoided where the trust deed had specified that the trustee's decisions could not be implemented without the consent of a protector.
According to law firm Carey Olsen, ‘the risk of deadlock cannot in practice be extinguished.’ If it happens, the trustee and protector may have to seek the court's direction, a possibility expressly left open by the Court’s decision.
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