Offshore Protectors: Bermuda Or Jersey?

• Published date: 03 November 2021
• Subject Matter: Wealth Management, Wealth & Asset Management, Offshore Financial Centres
• Law Firm: Ogier
• Author: Mr Anthony Partridge and Jordan Constable

Summary

Protectors are common features of discretionary trusts settled under Cayman Islands law, however there is very limited local jurisprudence addressing the nature and performance of their powers and duties.

On 7 September 2021 the Supreme Court of Bermuda handed down an important judgment in Re the X Trusts [2021] SC (Bda) 72 Civ considering the nature of protector powers of consent in the context of offshore pension trusts.

On 5 October 2021 the Royal Court of Jersey handed down an equally important judgment in Re Piedmont and Riviera Trust [2021] JRC 248 which also considered the nature of protector powers in the context of an application by the trustees of two trusts to approve their decision to appoint trust assets to the beneficiaries in prescribed proportions. This article explores both judgments' impact as a matter of Cayman Islands law.

Re the X Trusts: the background

The judgment forms a landmark in wider trust proceedings being heard before the Supreme Court of Bermuda. The key issue for determination concerned the role and powers of trust protectors in the context of an offshore pension trust where, as is often also the case in offshore discretionary trusts, the trustees could only exercise certain powers with the prior or simultaneous written consent of the protectors.

The parties to proceedings fell into two camps arguing for different analyses of the protectors' roles which in turn impacted upon their exercise of powers:

Under what was described as 'the Narrow View' the protectors' role would be "to satisfy themselves that the proposed exercise of a power by the Trustees of the X Trusts (or any of them) is an exercise which a reasonable body of properly informed trustees is entitled to take and, if so satisfied, to consent to the same", a similar test applied by the court in blessing applications under the category (2) Public Trustee v Cooper jurisdiction.

Under what was described as 'the Wider View' the protectors' role would be "to exercise an independent discretion as to whether or not to give consent to a proposed exercise of power by the Plaintiffs (as trustees of the X Trusts) (or any of them) which requires the protectors' consent, taking into account relevant considerations and disregarding irrelevant considerations so that the protectors 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...