Recent Trust Protector Issues Affecting The Enforcement of Trusts in the Channel Islands
The purpose of the appointment of a protector is to monitor the actions of a trustee and to ensure that appropriate action is taken to preserve the trust fund. Protectors are commonly given "positive" powers such as the power to appoint and remove trustees and "negative" powers such as the right to withhold consent to distributions to beneficiaries. The role of a protector is a significant one to the administration of a trust.
In Guernsey, the court was asked to remove a protector by the beneficiary inthe matter of the K Trust(Royal Court 31/2015) where there had been a breakdown in the protector's relationship with the beneficiaries. The protector was reluctant to resign until a suitable replacement of her choosing was appointed. In granting the beneficiaries' application, the Royal Court held that a protector might be removed where it appears clear that her continuance would be "detrimental to the execution of a trust" or otherwise damage the welfare of the beneficiaries' interests.
In Jersey, in the case ofre Freiburg Trust 2004 JLR N-13, the protector had been convicted of fraud, including misappropriating monies from the Freiburg Trust. He had disappeared. The protector's consent was needed for the trustee to distribute income and capital. The trustee also had limited power to remove the protector. The court held that it had inherent jurisdiction to remove a protector for due cause. The protector was a fiduciary and the court "must have power to police the activities of any fiduciary in relation to a trust whether he be called a protector or indeed any other name. Such a jurisdiction is a necessary incident of the duties to protect the interests of beneficiaries."
Further, inre the A Trust(2012) JRC 169A, some of the beneficiaries relations had broken down and all of the beneficiaries had wanted the protector removed. The court said a protector's duty was to see that the trustees had due regard to the settlor's wishes, not to enforce the settlor's wishes as the protector suggested. Hence, the protector's paramount duty was to the beneficiaries. The court found the test, which applied here, to remove a protector was whether the protector's continuation in office "would be detrimental to the execution of the trusts." In this case, the protector was reluctant to retire, there was mutual hostility and distrust between the beneficiaries and the protector was having a seriously detrimental effect on the execution of the trust, which was likely to continue.
Finally, inre Jasmine Trustees Limited(2015) JRC 196, there were two family trusts in which the father was the original protector. The father was also a beneficiary with his children and grandchildren. The protector had wide ranging powers to appoint and remove trustees and successor protectors. These powers were considered to be one of a fiduciary. The court held that the power to appoint successor protectors required the protector,inter alia, to act in good faith, in the interests of the beneficiaries as a whole and not to act for an ulterior motive. The court decided that the father's decision to appoint his two sons and not include his third child, a daughter, as successor protectors was irrational and declared the appointment invalid. The reasoning included ongoing litigation in the US between the beneficiaries, previous instances of the sons doing what the father wanted without regard to their fiduciary duties as directors of family owned entities, and a breakdown in relations between the sons and the daughter making it impossible for the brothers to be seen as acting fairly.
Thus, where a protector is held in a fiduciary capacity, he is obligated to act in the interests of the beneficiaries as a whole. It is clear that a court in the Channel Islands will exercise its inherent jurisdiction where protectors are acting irrationally and such conduct is detrimental to the execution of the trust.