The role of a trustee is one of great responsibility and, occasionally, great difficulty. In the case of many trusts established during the lifetime of a settlor, a professional person or entity may be appointed to act as trustee. Ironically, therefore, there is unlikely to be an existing relationship or, as a result, much trust as between the settlor and the trustee, at least initially.
For this reason, whilst it is common for a settlor to bestow on a trustee wide discretionary powers of management and disposition over the trust assets, it is also increasingly common for a settlor to reserve certain powers to themselves or grant them to others as a means of controlling or limiting the powers of the trustee.
It is inevitable that the role of a so-called 'protector' (or sometimes 'appointor') can cause further or new issues to arise in the administration of trusts and litigation concerning trusts. Any additional guidance from the courts concerning the nature and extent of their powers is to be welcomed.
Facts in PTNZ
The detailed decision of Master Shuman in PTNZ concerned four discretionary trusts (the Trusts) established in 2008 for the benefit of the settlor and his family. The Trusts were governed by English law but administered in Jersey.
By the terms of the Trusts, as varied by a deed of variation, the settlor was the original 'protector' of the Trusts, until his death in early 2019. The English proceedings were commenced in the context of a proposed restructuring of the Trusts, arising out of a history of alleged environmental and criminal offences made against certain members of the family, including beneficiaries of the Trusts.
Proceedings had already taken place in Jersey to 'bless' the trustee's decision to give effect to particular restructuring proposals (based on the approach endorsed by the English court in Public Trustee v Cooper). Those proceedings had become contentious and the application was made to the English court for further assistance.
Following the death of the settlor, his widow and children purported to appoint a replacement protector. The issues before the court concerned the validity of the appointment and (if validly appointed) the role of the protector in relation to decisions of the trustee.
Validity of the appointment of the protector
The relevant term of the Trusts said this:
"The Protector for the time being, or in the event of his death his executor, administrator or personal representative, shall have power by instrument in writing delivered to the Trustees to appoint a replacement or additional Protector."
The settlor had not appointed a replacement. The power to appoint a replacement was therefore vested in the "executor, administrator or personal representative" of the settlor. These terms are relatively familiar to English lawyers, even if some confusion can arise as to the distinctions and overlaps between them.
Despite the choice of English law to govern the Trusts, however, the settlor in this case had little or no connections with England. He was most likely domiciled, from an English perspective, in Monaco. Under Monegasque law, like in many civil law jurisdictions, the assets of a deceased person vest directly in their heirs and there is no equivalent role of a person in whom the assets vest for the purposes of administering the estate.
The replacement protector had therefore been appointed by the settlor's heirs. Following a helpfully thorough exposition of the definitions of the words as a matter of English law, the rules relating to the construction of documents and applicable principles of Monegasque law, Master Shuman held as follows:
"I therefore consider that the correct construction of "executor, administrator or personal representative" is a person who holds a foreign office or otherwise has attributed to him or her legal characteristics equivalent to an executor, administrator or personal representative appointed by an English court. I also consider that "personal representative" is used in a wider and more flexible sense...
Given my construction, the next question is whether the...heirs fall within that definition. This case demonstrates the inherent dangers of conflating English concepts with those used and applied in foreign jurisdictions, specifically here under Monegasque law. I am satisfied that "heirs" under that law has the characteristics of the office of personal representative...
Therefore the 10th defendant was validly appointed as protector of the trusts."
Extent of the protector's powers
The terms of the Trusts included, crucially, requirements that certain powers of the trustee could not be exercised without the consent of the protector, including the powers to appoint or apply the funds of the Trusts for the benefit of the beneficiaries.
The purpose of the proceedings, as mentioned, was to seek the blessing of the English court to certain decisions. The trustee therefore sought guidance on the nature of the protector's powers in this context and what role they should take in such proceedings.
The two contending interpretations of the requirement for the protector to give consent were either that it was a 'joint' power with the trustee, or a power of 'review'. In the former interpretation, any power which required the consent of a person other than the trustee could not be validly exercised without such consent. The person whose consent is required could withhold that consent (subject to any freestanding duties that person may have), whether or not the trustee's decision was reasonable. A power of 'review', by contrast, would have suggested that the relevant person could only withhold their consent if satisfied the trustee is neither acting unreasonably nor for an improper purpose.
The Master noted that:
"...the purpose of the protector holding the power of consent is to control the trustees' exercise of their broad discretionary powers. I have not been referred to anything in the trusts that is consistent with a restrictive interpretation of the protector's role...I am satisfied that properly analysed the power of the protector is a joint power with the claimant and not a review power.
...In light of my decision there is no reason to limit the role of the protector at the blessing hearing. If there are matters which the 10th defendant considers are relevant for the court to consider he will no doubt be represented at that hearing and it will be of assistance to the court."
The judgment in PTNZ provides helpful guidance to all parties in the context of an application to bless a decision of a trustee, where that decision can in effect be vetoed by a protector. It also confirms the potential power of a protector and, likewise, the power of those who can appoint a person to that role.