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This article is part of a mini-series that explores the role of trust protectors.
It has been said that the narrow view of protector consent provisions has the effect of limiting the role of the protector.[1] To this, Kawaley AJ in X Trusts said:
‘Ensuring the Trustees properly exercise their important powers is in and of itself an important and substantial role. Depending on the content of the proposed action for which Protector consent is required, the Protectors will be entitled to undertake greater or lesser degrees of independent analysis before deciding whether to grant or withhold consent. In many cases the Protectors’ decision, affirmative or negative, will obviate the need for the Trustees to seek Court approval; in other cases the Protectors’ consent may mean that “blessing” applications can be dealt with in a more economical manner.’[2]
In addition, Gloster JA in the Court of Appeal in X Trusts pointed to the value in having the protector ‘bring to the administration of the trust the communication of relevant wishes and circumstances, in order to ensure that the trustees properly take account of relevant considerations and conduct their deliberations with due process’.[3] In other words, the protector serves an important function that goes far beyond deciding whether to consent or not to a decision of the trustee.
It may also be contended that the narrow view discourages dialogue between the trustee and the protector, reducing the protector’s role to the provision of a simple “yes” or “no” answer. The Court in Piedmont highlighted the value of discourse between trustees and protectors as a factor in favour of the wide view:
‘A protector and a trustee should work together in the interests of the beneficiaries. It is therefore perfectly reasonable for a protector to explain his concerns about a particular proposal by the trustee and the trustee may often be willing to modify his proposal to take account of these concerns or the protector may be satisfied after the trustee has explained his thinking.’[4]
Whilst, of course, dialogue between the trustee and the protector is to be encouraged as it will likely result in better decisions for beneficiaries, there is no reason that such dialogue is confined to circumstances in which the protector had a wide review role. On the narrow view, a protector who assesses the rationality of the trustee’s decision and decides that he must consent can nevertheless ask questions and provide feedback in relation to the proposal before doing so. There is nothing that says that the trustee must press on with the original proposal, notwithstanding the protector’s concerns, if the protector is cast in the narrow role. Indeed, given their fiduciary duty to act in the best interests of the beneficiaries, and their obligation to take into account all relevant considerations (which must necessarily include any views expressed by the protector), it would be a most unwise trustee indeed who pressed on regardless. True it is that the protector cannot veto a rational decision on the narrow view, but that does not mean that the protector is entirely without influence.
Conversely, critics of the wide view might contend that it creates a risk of deadlock, with the possibility that both the trustee and the protector might reach perfectly rational but diametrically opposed decisions. To this, Sir Michael Birt in Piedmont said:
‘We acknowledge that the approach we favour carries with it a greater risk of deadlock between trustee and protector if a protector refuses consent. Clearly, if a trustee considers that a protector’s refusal to consent is irrational or otherwise legally flawed, he may have recourse to the Court to overturn the protector’s veto. However, there is the potential for deadlock where the trustee and the protector both reach rational but opposing decisions. In our judgment, this is a natural consequence of the settlor’s decision to introduce the office of protector into the trust deed. A settlor must be taken to have intended (by imposing a requirement for consent) that a trustee should not be able to make decisions unless the protector consents. If consent is refused, the trustee’s decision cannot be put into effect. In most cases this is likely to lead to further discussion between trustee and protector in the hope of finding a sensible outcome. In the event of a complete deadlock where such deadlock is causing real damage to the interests of the beneficiaries, we leave open the possibility of recourse to the Court.’[5]
Of course, if the protector consent provision were construed based on the narrow view, the settlor’s decision to introduce a protector would do nothing to increase the risk of deadlock. The settlor’s intention to have the trustee constrained to act only with consent of the protector could therefore be given effect without causing unnecessary conflict and delay.
In addition, it could be said that the wide view puts disproportionate power in the hands of the protector, giving the protector the ultimate decision-making power over the trustee. This argument was considered persuasive by the Court of Appeal in X Trusts in rejecting the wide view. Per Gloster JA:
‘If the role of the Protectors was indeed the Wide Review Role, the Protectors, by threatening the exercise of their (on this hypothesis) absolute right of veto, would in effect themselves be taking the decision (for example) whether, to whom and in what amount to appoint capital or whether to sell Specified Securities and at what price. That would not be a joint decision with the Trustees, but rather an entirely separate decision by the Protectors, trumping that of the Trustees.’[6]
Such an imbalance of power would be entirely inappropriate, given the respective constitutional roles of the trustee and the protector. Indeed, it has long been understood that ‘it is the Trustees who operate the trusts and the Protectors are there to act as watchdog or enforcer of the trusts imposed on the Trustees, not to operate such trusts themselves.’[7]
The Jersey Court in Piedmont appeared to recognise that there may be circumstances in which the protector has to consent to decisions of the trustee with which he disagrees:
‘A protector may often find that he should consent to a discretionary decision of a trustee on the basis that it is for the benefit of one or more of the beneficiaries even though, if he had been the trustee, he might have made a different decision which he thought to be even more beneficial.’[8]
This is wholly inconsistent with the wide view as it suggests that the protector is not unfettered in his independent decision-making and may at times have to agree to things with which he in fact disagrees because, having reviewed the decision of the trustee, he finds that it is in the interests of one or more of the beneficiaries. In making this suggestion, the Court in Piedmont appears to have recognised the inherent difficulties of the wide view.
In addition, the wide view is undoubtedly less efficient and less economical. As Gloster JA noted in X Trusts:
‘First, the trustee makes its decision, including taking such expert or professional advice as it thinks it needs, consulting with its beneficiaries and deliberating accordingly. Subsequently, if the Protector’s consent is required to be given to the particular decision, the Protector then has to go through a similar process of making its own enquiries, consulting with the settlor or the beneficiaries, taking its own independent advice, whether expert or professional, before coming to its own independent view on the matter which is the subject of the Trustee’s decision. All that process may have to take place against a time critical scenario, for example in relation to the voting of shares at a shareholders’ meeting.’[9]
The wide view creates ‘duplication, delay, cost and conflict’, whereas the narrow view ‘produces a result which means that the operation of the two fiduciary roles (of Trustees and Protectorate) is simple, clear, efficient and complementary’.[10]
Finally, the wide view imposes a greater burden on protectors, which brings with it an increased risk of criticism and/or of being sued. ‘One may wonder if this is what protectors typically consider their role requires, and if it is what their insurers typically consider their role requires. After all, if they, in a fiduciary role have to come to their own independent decision about the substantive proposal, that imports a decision-making process which could be exercised wrongly and be adjudged as such by a Court.’[11] Of course, it is open to a settlor to confer such a role on the protector, but that ought to require clear words in the trust instrument to that effect, not least so that the protector knows what is expected of him and what his potential exposure is.
Further articles in this series
This article is part of a mini-series that explores the role of trust protectors. Other articles in the series include:
- Part 1: An introduction to the use of protectors;
- Part 2: Protector consent provisions as they have been interpreted in recent case law;
- Part 4: The possibility of drafting to remove any uncertainty; and
- Part 5: The consequences for the protector who oversteps his role.
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[1] See: In the matter of the Piedmont Trust & Riviera Trust [2021] JRC 248 at [91]. The argument is also advanced in Egan, S., (2022) Protectors as ‘mere toothless tigers’? Advocating in favour of the ‘Wider View’. Trusts & Trustees. 28 (8), 715-721 at 717: ‘Such a finding is merely to render the role of the protector redundant and to reduce it to a ‘mere toothless tiger’ as all the protectors can do is monitor the decision-making of trustees in a role akin to that of the Court.’
[2] In the matter of the X Trusts [2021] SC (Bda) 72 at [117].
[3] In the matter of the X Trusts [2023] CA (Bda) 4 Civ at [131].
[4] Op. cit. (n 1) at [93].
[5] Ibid. at [118].
[7] Ibid. at [91], citing Re an Application for Information about a Trust [2013] CA (Bda) 8 Civ at [11].
[8] Op. cit. (n 1) at [92].
[9] Op. cit. (n 3) at [146].
[10] Ibid. at [165].
[11] Renouf, M., and Flavin, M., (2022) Piedmont and X-Trusts: ‘what are protectors for?’ Trusts & Trustees. 28 (2), 76-81 at 80.
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