Trust Protectors: Powers, Duties And Removal

Relationships between Protectors and other parties to a trust can occasionally deteriorate, resulting in in disputes focussing on the Protector's conduct, and calling for his or her replacement.

Two recent offshore judgments illustrate the types of disputes that can arise. In the representation of Jasmine Trustees Limited & another [2015] JRC 196 (Jersey)

Background

In Jasmine Trustees Limited [2015] JRC 196, the Royal Court of Jersey provided clear guidance on the fiduciary duties owed by those charged with appointing and removing trustees and Protectors. This case related to two family trusts, the Piedmont Trust (P Trust) and the Riviera Trust (R Trust). There was a relationship breakdown between a father and his sons, on the one hand, and his daughter, following contentious U.S. litigation. The beneficiaries of the P Trust included the father, sons, daughter and their children. The father was the Protector of the P Trust and Jasmine Trustees Limited (Jasmine) was the trustee. The beneficiaries of the R Trust were the same as the P Trust, but with two additional adult beneficiaries. The father was the Protector and both Jasmine and Lutea Trustees Limited (Lutea) were the trustees.

The father exercised his purported powers as Protector to:

Remove Jasmine and Lutea as trustees and appoint another firm (Kairos) in their place (despite there being unanswered questions and a lack of consensus among beneficiaries regarding Kairos). Retire as Protector of the R Trust and P Trust and appoint his sons in his place. In the event of a Protector's retirement, the P Trust deed required a majority of adult beneficiaries to appoint a replacement. All beneficiaries except the daughter consented to the sons' appointments.

Jasmine and Lutea challenged the validity of the appointment of Kairos, while the daughter sought a declaration that the appointment of the sons as Protectors was invalid due to their conflict of interest and past behaviour.

Decision

The Jersey Court referred to the Cayman Islands Grand Court decision of Re The Circle Trust [2006] CILR 323 and agreed that the power to appoint a Protector or a trustee is a fiduciary one, even when vested in someone other than a trustee (such as a Protector or even a beneficiary, as in this case)1. The court then set out a non-exhaustive list of principles for fiduciaries when appointing trustees and Protectors:

To act in good faith and in the interests of the beneficiaries. To act as a reasonable...