Part 5: The consequences for the protector who oversteps his role

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

Irrespective of whether the protector’s role is wide or narrow, it will occasionally be the case that the protector strays beyond the scope of the powers conferred upon him.

Let us imagine a scenario in which the trustee has decided to make a distribution to certain beneficiaries but the protector refuses to consent to this, not on the basis that the trustee’s decision is irrational or otherwise open to challenge, but simply because the protector disagrees with it. Assuming the narrow view of the protector’s role is the correct one, the protector in this scenario has clearly overstepped his boundaries. In such circumstances, the trustee can apply to the Court for a blessing, effectively inviting the Court to approve the trustee’s decision notwithstanding the protector’s objection.[1]

If the protector continually oversteps, or else misunderstands his role entirely, he could be removed altogether under the Court’s inherent jurisdiction:

‘The court has jurisdiction to remove a protector for good cause, at any rate where that step is necessary to prevent the trusts from failing or where a protector’s continuance in office would prevent the proper execution of the trusts’.[2]

By way of example, in In the matter of the A and B Trusts,[3] the Jersey Royal Court was faced with an application by the beneficiaries to remove the protector. The protector there had a ‘misconceived view of himself as the living guardian and enforcer of the settlors’ wishes’ and considered that it was his role to ‘ensure that the wishes of [the settlors] [were] adhered to’.[4] The Court found that the protector had cast himself in a role which ‘went well beyond what was proper for someone in his position’.[5] Although noting that the removal of a protector was not to be undertaken lightly, the Court was persuaded in the circumstances that the continued involvement of the protector would be contrary to the proper administration of the trusts, notwithstanding the fact that the protector had acted in good faith throughout. The Court removed the protector accordingly.

The Bermuda Court has also had cause to consider the removal of a protector.[6] In In the matter of the FA and FB Settlements,[7] Hargun CJ held that:

‘The overriding consideration is the welfare of the beneficiaries and the competent administration of the trust. It is unnecessary for the Court to make a finding of wrongdoing on the part of the protector as a ground for removal. It is sufficient that there is evidence that the continuance of the office holder would be detrimental to the execution of the trust.’[8]

In light of the above, protectors would be well-advised to ensure that they understand the scope of what is expected of them and that they stay within the bounds of their authority. They should also recall that their primary duty is to the beneficiaries, not to the settlor who appointed them. To do otherwise would be to risk criticism and potentially costly litigation. It is also worth noting that acting in good faith will not save a protector from removal if the interests of the trusts require it.

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 4: The possibility of drafting to remove any uncertainty.

 

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[1] Indeed, this is precisely what happened in In the matter of the Piedmont Trust & Riviera Trust [2021] JRC 248.

[2] Lynton, T., Le Poidevin, N., and Brightwell, J., (2020) Lewin on Trusts, (20^th ed.), London Sweet & Maxwell, § 28-046

[3] [2012] JRC 169A

[4] Ibid. at [3].

[5] Ibid. at [11(ii)].

[6] In that case, the continued suitability of the protector (a US lawyer) was challenged following the discovery that he had “been “Publicly Censured” by the Attorney Grievance Committee for the First Judicial Department of New York State because he had counselled a client to engage in conduct he knew or should have known was illegal or fraudulent and suggested that lawyers in the United States can act with impunity.” See: In the matter of the FA and FB Settlements [2021] SC (Bda) 59 Civ at [11].

[7] Ibid.

[8] Ibid. at [20].