Competing Approaches To The Roles And Powers Of Protectors In Offshore Trusts

• Published date: 12 April 2022
• Subject Matter: Finance and Banking, Corporate/Commercial Law, Financial Services, Corporate and Company Law, Trusts
• Law Firm: Carey Olsen
• Author: Mr James Noble, Amelia Tan and Yan Chng

The roles and powers of protectors in discretionary offshore trusts were recently considered in landmark decisions of the Supreme Court of Bermuda and the Royal Court of Jersey, which took different approaches to the question of whether the powers of consent of protectors confer an independent decision-making discretion on the protectors (the "Wider View") or merely a discretion to ensure that the trustees' substantive decision was a valid and rational one (the "Narrower View").

The Supreme Court of Bermuda: Re the X Trusts [2021] SC (Bda) 72 Civ

The case of Re the X Trusts [2021] SC (Bda) 72 Civ (the "X Trusts") centered on the construction of the protector provisions in the X Trusts, in particular, whether the scope of the protectors' powers of consent accorded with the Wider View or the Narrower View. In that case, the trustees of the X Trusts were required to obtain the consent of the protectors to finalise proposals for the restructuring of the trusts to enable a division of the trust assets. The Narrower View would place the protectors' veto powers within limited bounds whereas the Wider View would expand them by conferring an unfettered veto power on the protectors.

In his judgment handed down on 7 September 2021, Kawaley J favoured the Narrower View after considering extensive and detailed arguments made by the parties. His reasons are summarized as follows:

1. The Narrower View reflected the true construction of the consent powers conferred on the protectors in the X Trusts primarily because the terms of the relevant instruments made it clear that their dominant purpose was to ensure the due exercise of the powers vested in the trustees. Unless a contrary meaning could 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 them.
2. The drafting of the trust deed clearly distinguished between powers expressly vested in the trustees, powers expressly vested in the protectors and powers expressly vested in the trustees subject to protector consent. A contextual reading of the protector provisions suggested that the consent powers were not intended to be powers exercised jointly with, or entirely independently from the powers conferred on the trustees subject to protector consent More importantly,...