Part 4: The possibility of drafting to remove any uncertainty

This article is part of a mini-series that explores the role of trust protectors.

Any settlor wishing to clarify the role of the protector in relation to his own trust could do so in the trust deed, identifying not just the circumstances in which the protector’s consent will be required but also the way in which the protector is to decide whether or not to grant consent and the circumstances in which consent might be withheld. The Court of Appeal in X Trusts recognised this possibility, noting the absence of such provisions as support for their finding that it was the narrow view that should prevail:

‘to the extent that there are special, express, contrary provisions contained in the trust instrument which alter the balance of power between trustees and protector, conferring more extensive or different roles on the protectors and (correspondingly) less extensive or different roles on the trustees, the situation might be different.’[1]

If the settlor’s intention is to give the protector the wide role as espoused in Piedmont, it is important to address this specifically in relation to provisions requiring the protector’s consent. It will not be enough to rely on the fact of having granted the protector wide powers elsewhere as indicative of an intention that the protector’s review role should also be a wide one. As noted by the Bermuda Court of Appeal in X Trusts: ‘the width of the Protectors’ powers where powers are uniquely conferred on them, is no basis for determining the breadth of a Protectors’ role under a provision providing for their consent only to the exercise of a discretion which is, and remains exclusively, vested in the Trustees.’[2]

Some commentators have suggested that the scope of the protector’s powers should be assessed in context, including the circumstances in which the trust was set up, the settlor’s intent and the reasons for appointing a protector in the first place.[3] This would, of course, constitute a departure from the settled principles of contractual interpretation,[4] which require a primary focus on the meaning of the words used and which have been held to apply equally in the trusts sphere.[5] Indeed, in the 2018 UK Supreme Court case of Barnardo’s,[6] the Court found that textual analysis was more important than factual context when it came to interpreting trust documents. After setting out some of the characteristics of the trust deed being interpreted (including the fact that it is a formal legal document prepared by skilled draftsmen, that it is not the product of commercial negotiation, and that it is designed to work in the long-term, after the economic and other circumstances that existed at the time of signing have ceased to exist), Lord Hodge JSC noted that:

‘Judges have recognised that these characteristics make it appropriate for the court to give weight to textual analysis, by concentrating on the words which the draftsman has chosen to use and by attaching less weight to the background factual matrix than might be appropriate in certain commercial contracts.’[7]

Against the backdrop of well-established principles of construction coming from the highest courts, it is a bold assertion indeed to suggest that we ought now to tear up the rulebook when it comes to interpretation of trust documents simply in the pursuit of giving effect to what a settlor might have intended when appointing a protector. The better answer is for the Court to approach interpretation of the trust instrument and its provisions as to the protector’s powers in the usual way, but for those responsible for drafting trust instruments to address their minds specifically to the role of the protector, especially when it comes to the operation of protector consent provisions, so that the answer is there in the textual analysis for all to see.

If the settlor does not give active consideration to the scope of any protector consent provisions when drafting the trust instrument, there is a risk he may find that the protector’s role differs from that which he envisaged. At present, at least in Bermuda, he will find that the Court interprets the protector’s role based on the narrow view, although leave has been granted for the X Trusts to proceed to the Privy Council so the position may change. It remains to be seen what will happen elsewhere. Given the conflicting approaches taken by the Bermuda and Jersey courts, authority from the Privy Council would be very helpful.

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 3: An analysis of the arguments in favour of the wide and narrow view of protector consent provisions; and
• Part 5: The consequences for the protector who oversteps his role.

 

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[1] In the matter of the X Trusts [2023] CA (Bda) 4 Civ at [91].

[2] Ibid. at [99].

[3] Leung, Y.C., and Au-Yeung, B., (2022) “Settlor-ing” their differences: protector or protagonist? Trusts & Trustees. 28 (8), 761-772 at 766

[4] Although the commentators attempt to suggest that their proposed approach is consistent with established principles of contractual interpretation, the approach they advocate is plainly at odds with the settled law in this area. For example, they suggest that the relationship of the settlor with the trustee and the protector should be considered as part of the process of interpreting the protector’s powers, on the basis that the protector should have a wider discretion when he has a close personal relationship with the settlor – see: Leung, Y.C., and Au-Yeung, B., Ibid. at 769. This has the somewhat absurd result of the trust instrument meaning different things at different times, despite its wording never changing, simply based on who is in post as protector at that moment. This cannot be right.

[5] Grand View Private Trust Co Ltd v Wong [2020] CA (Bda) 6 Civ at [93]: ‘As to the scope of the power, the principles of construction which apply to a document such as a declaration of trust are the same as those which apply to a contract … The most important aspect of the process of construction is to consider the meaning of the words used’.

[6] Barnardo’s v Buckinghamshire [2018] UKSC 55

[7] Ibid. at [15]. Although that case concerned a pension scheme trust deed, it has been held by the Bermuda Court of Appeal to be apposite to all trust instruments: X Trusts, Op. cit. (n 1) at [40].