JERSEY COURT CLARIFIES
DUTIES OF THOSE
APPOINTING TRUSTEES AND
PROTECTORS
Voisin partner Nigel Pearmain looks at a recent judgment in which the Royal Court of Jersey provided clarification on
the extent to which the Court will upset the decisions of a fiduciary powerholder.
The validity and propriety of decisions taken by fiduciary powerholders has been the subject of quite a few court
applications in recent years and in the same vein, the Royal Court has recently sat to consider such issues In the matter
of the Representation of Jasmine Trustees Limited [2015] JRC196.
By way of background, Jasmine Trustees Limited (the “Trustee”) was Trustee of two trusts namely the Piedmont Trust
(“P Trust”) and the Riviera Trust (“R Trust”). These were discretionary family trusts established by the father who was
also named as the original/first protector of each trust. Lutea Trustees Limited (“Lutea”) was also a co-trustee of the R
Trust. Both Trusts were governed by the laws of Jersey from where they were administered.
The father, as settlor of the P Trust, by his original letters of wishes, had expressed the view that the P Trust should be
able to provide for him during his lifetime but that it ultimately was his wish that the trust would be utilised for his
grandchildren, and divided into three parts, one for each of his children, being his two sons and his daughter. It was
evident form a later letter of wishes in 2010 that the relationship between the father and his daughter had deteriorated
significantly, as that letter stated that the trust fund should be divided only into two parts, for the benefit for each of his
two sons.
The breakdown in the relationship within the family was further emphasised by the fact that there was ongoing
litigation in the United States involving the daughter on the one hand and the father and his sons on the other.
Appointment of New Trustees
Under the terms of the P Trust and the R Trust, the father, as Protector of each trust, had the power to appoint and
remove trustees and in 2014, he exercised those powers to the effect that the Trustee and Lutea were replaced by
Kairos Trustees (NZ) Limited (“Kairos”), a New Zealand based entity. These appointments took the existing trustees by
some surprise and they undertook due diligence upon Kairos; the result of their findings was that they were concerned
with their appointment and that concern was exacerbated by the fact that it became clear that the appointments were
not supported by all of the beneficiaries. In the circumstances, not surprisingly, the Trustee and Lutea issued a
representation seeking directions over this issue.
Following the issue of the Representation, the two sons (who had subsequently been appointed as Protectors of the P
Trust and the R Trust in place of their father) exercised powers to remove Kairos as trustee, without purporting to
appoint a new trustee in its place. As such, this decision also became an issue for the court to consider,
notwithstanding the fact that it was accepted at Court that none of the beneficiaries wanted Kairos to be trustee of the
two Trusts. Given that the issue had been brought before the Court, the Court needed to rule on the validity of the
appointment because a challenge to the appointment of the sons as Protectors of the Trusts had arisen during the
course of proceedings; it followed that if they were not validly appointed as Protectors of the two Trusts, that they
could not have exercised a power to remove Kairos as trustee.
Following argument upon matters the Court ruled that:
1. The power to appoint trustees is a fiduciary power, regardless of whether it is vested in someone other than the
outgoing trustee;
2. The fact that the powers were to be exercised by a protector rather than a trustee made no difference to the nature
of the duties that were imposed upon the powerholder.
Voisin, 37 Esplanade, St Helier
Jersey, JE1 1AW, Channel Islands
Tel: +44 (0)1534 500300
Fax: +44 (0)1534 500350
www.voisinlaw.com
[email protected]
Following earlier decisions, the Court confirmed that the duties of a fiduciary required that he could not exercise his
power in an irrational manner and there was imposed upon a fiduciary a duty to act reasonably. Usefully, the Court
provided additional judicial gloss as to the basis for these limitations, namely:
(1) The Court itself has a supervisory jurisdiction and its duties in that regard are to protect the interests of
beneficiaries. It would be an abandonment of this function if it refused to act and permit beneficiaries to suffer the
consequences of a decision that no reasonable powerholder could have reached;
(2) The approach of the Court was consistent with that adopted in other jurisdictions;
(3) Consistent with the Court’s role when it is engaged to bless a “momentous decision” of a trustee, the Court would
not do that if it was one that no reasonable trustee could have reached (though it was made clear again in this
judgment that the Court would not overturn a decision of a powerholder simply because it would have arrived at a
different conclusion itself).
On this last point, the Court made the point that there is latitude for different trustees to reach different decisions on
the same matter and it is only decisions that fall outside the range of decisions that could come within the scope of
“reasonable disagreement” that may be overturned by the Court.
On the facts of this case, the Court concluded that Kairos was invalidly appointed as the father (as Protector at the
time) had failed to take into account relevant issues including (a) expertise (b) experience and (c) financial standing of
Kairos, he had also taken into account irrelevant matters and reached a decision no reasonable appointor could have
arrived at. Looking at matters practically, the Court also took the view that the appointment of the new trustee and the
removal of the old one were intrinsically linked and stood or fell together. As such, the Trustee and Lutea remained as
trustees of the P Trust and the R Trust.
Appointment of Protectors
Some months after the commencement of the Representation, the father had appointed his two sons as Protector of
the Trusts and the daughter issued a summons under the Representation to deal with that matter, in order that the
Court could consider whether their appointment was either invalid or, alternatively, remove them, given the stated
objections of the daughter.
The daughter’s objections to the appointment of her brothers as Protectors of the two Trusts were based upon (a) the
ongoing litigation in the United States (b) allegations that the sons were not able to exercise independent judgment to
that of the father, based upon alleged previous dealings with US companies of which they were directors and held
fiduciary positions and (c) there was an irretrievable breakdown in the relationship between the daughter and the sons
such that it would be impossible for them to act or be seen to be acting fairly with respect to their duties (under the two
Trusts) that they owed toward the daughter and her children qua beneficiary.
The Court noted that the terms of the two Trusts envisaged the circumstances where the Protector could consent to
appointments which would benefit him or his family personally and, therefore, the fact that the sons could be viewed
as having adverse interests to those of the daughter (as a rival beneficiary for benefit) did not, of itself, raise a valid
ground to question their appointment.
Nevertheless, the Court ultimately found that the decision of the father to appoint the sons as Protectors of the two
Trusts was irrational. The Court noted that although not every conflict of interest renders the position of a fiduciary
untenable, it was a question as to how pervasive the effect was of that conflict in the particular circumstances. In this
case the ongoing US litigation meant that it was not possible for the sons to be viewed as being able to act fairly as
Protector.
The Court also gave weight to the fact that the sons had demonstrated in the past that they were prone to simply
comply with the wishes of their father and, therefore, the daughter had legitimate concerns as to how her brothers
would perform their function as Protector, given the fiduciary nature of those obligations. It was also of relevance, that
there has been a breakdown in relations between the daughter and the sons making it impossible for them to be seen
to be in a position to act fairly as Protector. Overall the Court concluded that the appointment of the Protectors “would
undoubtedly have a seriously detrimental effect on the administration of the Trusts”. As such, the appointments were
declared invalid.
As with other decisions of a fiduciary character the Court reiterated that protectors must (1) act in good faith, (2) reach a
Voisin, 37 Esplanade, St Helier
Jersey, JE1 1AW, Channel Islands
Tel: +44 (0)1534 500300
Fax: +44 (0)1534 500350
www.voisinlaw.com
[email protected]
decision that is open to a reasonable person, (3) take into account relevant matters and only those matters and (4) not
act for an ulterior purpose. Usefully, the Court also confirmed that the duties of an appointor when appointing a
protector of a trust do not alter even if the identity of the appointor is the majority of the adult beneficiaries of the trust.
Comment
This case provides further useful clarification on the extent to which the Court will upset the decisions of a fiduciary
powerholder. In its judgment the Royal Court noted that “a settlor does not choose the Court as the donee of the
relevant power; he chooses the person appointed in or by virtue of the provisions in the trust deed” but at the same
time it reaffirmed that its role was a “supervisory one” and it would be required to engage that jurisdiction if a decision
fell outside that range of decisions capable of being the subject of “reasonable disagreement”.
Where there has been a family breakdown or trenchant tensions within the family already exist, appointing members of
that family into fiduciary roles is likely to cause potential for issues to arise and in certain cases this will be inimical to
the sound administration of the trust. In those circumstances, the appointment of parties that do not have any
connections with any of the beneficiaries it likely to be preferable but, of course, practically, protectors, for example,
are often selected on the basis that they do have some form of connection or knowledge of the family. In respect to
trustees, the appointment of someone that has no prior connection to the family is, arguably, less of an issue but in
each case it can be seen that careful thought should be given to avoid contentious appointments being made.
For further information on this judgment or any trust litigation matter, please contact Nigel Pearmain of Voisin’s Trust
team.
Voisin, 37 Esplanade, St Helier
Jersey, JE1 1AW, Channel Islands
Powered by TCPDF (www.tcpdf.org)
Tel: +44 (0)1534 500300
Fax: +44 (0)1534 500350
www.voisinlaw.com
[email protected]