TRUST LAW; LEGAL NATURE OF PROTECTOR’S ROLE WHEN VESTED WITH A POWER TO CONSENT TO TRUSTEE DECISION
Representation of Summit Services [2024] JRC 222
The Royal Court referred to the differing views expressed in Jersey and Bermudan cases as to the nature and scope of a power, granted to a protector, of necessary consent to a trustee’s decision. Is the protector vested with a wide fiduciary discretion or is the power limited to a review of the trustee’s decision limited to whether it falls within the range of reasonable decisions that the trustee could have made? It was not necessary to resolve this point, although the Court observed that on either approach the protector’s power is subsidiary to that of the trustee and that it would not regard itself as exercising a power jointly with the trustee, as it appeared to have done in this case.
Applying the test set out in Re S Settlement [2001] JLR N 37 and approved by the Court of Appeal in Representation of Otto Poon Trust [2015] JCA 109, the Court blessed a momentous decision of the trustee. The decision of the Trustee was also subject to the Protector’s consent, which it had declined to give. The Representation did not seek any order in relation to the Protector or its consent, nor had the Protector sought the Court’s blessing for it. However, in its skeleton argument the Trustee requested the Court to consider the propriety of the decision of the Protector and in the event that the Trustee’s decision was blessed, and the decision of the Protector was found to be improper, either to direct the Protector to consent or to give directions to break the deadlock. The question was thus raised as to the nature of a power of consent given to a protector.
Held:
(1) There being no formal application in relation to the Protector’s decision and mindful of the principle of non-intervention the Court declined to consider the making of the orders sought by the trustee. However, the Protector indicated that, should the Court make any comment on the Protector’s position, not objecting to such comments being made, then the Protector would give those comments careful consideration. With that in mind the Court reviewed certain matters relevant to the Protector’s decision.
(2) The role of a Protector in considering whether or not to consent to the exercise of a power by a trustee is currently the subject of some judicial debate. In essence, the debate is between what has been described by the Bermuda Court of Appeal as the “Narrow Review Role” and the “Wide Review Role”, the former having been favoured by the Bermuda Court of Appeal in Re X Trusts [2023] CA (Bda) 4 Civ, the latter wider role of the Protector favoured by the Royal Court in Re Piedmont and Riviera Trusts [2021] JRC 248 (Birt, Commissioner). Under the Wide Review Role the protector, when deciding whether or not to give consent to a proposed exercise of a power of the trustees which requires protector consent, must exercise an independent discretion, taking into account relevant considerations and disregarding irrelevant considerations, so that the protector might withhold their consent to a proposed exercise of power by the trustees even if the proposed exercise of power was an exercise of power which a reasonable body of properly informed trustees was entitled to decide upon (the latter being a relevant factor, but not the only relevant factor, for the protector to take into account).
(3) Under the Narrow Review Role, the protector must be satisfied 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, consent to the same.
(4) Given that no order was sought from the Court in relation to the Protector’s refusal of consent, the question as to which of the Narrow View or the Wide View should be applied was not argued and the Court therefore expressed no view on it. Instead, the Trustee suggested, without objection from the other parties, that until these open issues of law are definitively resolved the law relating to the exercise of the Protector’s consent function may nevertheless be stated in the following terms:
(a) The Protector’s consent function, whether wider (being an independent discretion) or narrower (being a pure review function) is nevertheless clearly subsidiary to the Trustee’s own decision. The Protector does not exercise a joint power with the Trustee.
(b) It follows that, in determining whether to consent to the Trustee’s exercise of its power, the Protector should not consider how it would have exercised the Trustee’s power. Nor should the Protector refuse to consent to the Trustee’s exercise of its power on the basis that it (the Protector) might have exercised the power in a different way, had it been the Trustee. Rather, the Protector’s role is to consider how the Trustee has exercised the power, and to determine whether to consent to that exercise of the Trustee’s power on the basis of an evaluation as to whether it is in the best interests of the beneficiaries as a whole for it to do so.
(c) If the Protector’s refusal to consent to the Trustee’s exercise of its power is irrational or otherwise legally flawed, the Court has jurisdiction to overturn the Protector’s veto.
(d) By contrast, if the Protector’s refusal to consent to the Trustee’s exercise of its power is itself a proper exercise of that function, the Court can either (i) give directions for further discussions between the Trustee and the Protector to see whether the deadlock can be broken by a process of dialogue; or (ii) break the deadlock which has emerged by directing the Protector’s exercise of its power (by analogy to the Court’s ability to break a deadlock between co-trustees acting in good faith). In deciding how to proceed in this regard, the Court will no doubt consider the history of the matter, the circumstances in which the deadlock has arisen, and whether further dialogue or a decision by the Court itself is likely to be in the best interests of the beneficiaries as a whole.
(5) Whilst not ruling on the matter, the Court could see some merit in the Trustee’s suggested approach. What was clear is that the Protector’s consent is subsidiary to a decision by the Trustee. Without a decision of the Trustee there is nothing to which the Protector can consent. The Protector therefore exercises a review function, irrespective of whether it is a narrow or wider review, and is not exercising a power jointly with the Trustee.
(6) In the present case, although the protector’s role was still the matter of some judicial debate, the Court for the above reasons regarded the Protector’s consent as subsidiary to a decision by the Trustee and the Protector should not therefore regard itself as a co-trustee, which the Protector seems to have done in this case. Whilst recognising that it had not been asked to make a finding on the validity of the Protector’s decision, the Court hoped that these comments could be of some assistance to the Protector should it decide to reconsider its decision.
Bridgeford A, WDJL 21-27 October 2024