Analysis
The settlor established a discretionary settlement (K Trust) under the laws of Guernsey in 1990. The protector, who was the first respondent, and the original trustee were friends and advisors of the settlor. B1, who was the first applicant, married the settlor in 1991 but they did not have any children. When the settlor died in 2001, B1 was the only beneficiary of the K Trust. She requested that consideration be given to adding some of her relatives as beneficiaries. The second respondent (who had replaced the original trustee in 2002), with the consent of the protector, added B1’s relatives to the class of beneficiaries from 2003 onwards. The assets in the K Trust included shareholdings in two companies, which were the vehicles for holding real estate and a portfolio of investments with a current value in excess of £17m. Although all discretionary powers under the K Trust were vested in the second respondent as trustee most of these were only exercisable with the consent of the protector. In the events which occurred, tensions arose as to the operation of the K Trust between B1 and other adult beneficiaries on the one hand and the protector on the other hand culminating in a request that the latter relinquish her office. The protector declined on the basis that the settlor had appointed her because he did not want a family member in that office and that she considered herself privy to his wishes and able to see them given effect. B1 expressed the view that the protector’s retirement was required as being in the interests of the beneficiaries. By late 2011 the relationship between them had broken down quite significantly and written representations were made to the second respondent indicating the beneficiaries’ wish to terminate the K Trust. The protector was not supportive of this course of action, not least because there was significant difference of opinion as to the potential tax liabilities and what assets needed to be retained as a contingency. Eventually, a formal letter dated 13 June 2014 was written on the applicants’ behalf setting out in detail why they had lost trust and confidence in the protector and requesting her to resign her office, failing which proceedings would be commenced. The protector responded to the effect that she was willing to retire in favour of a suitably qualified successor, subject to a number of assurances relating to risk mitigation over prospective tax liabilities, indemnification of any liability she might have and costs. The applicants applied for the removal of the protector by an application dated 8 September 2014. The protector applied for directions as to whether she could retire from office by an application dated 7 November 2014. Both applications were heard together.
Held (ordering the removal of the protector but stayed pending her retirement):
Clause 20 of the K Trust provided that the protector should hold office for life or until, inter alia, she be desirous of being discharged from the position of protector or whenever the person for the time being having power to appoint a new protector (other than the trustee) desires that the protector for the time being shall be removed. The persons having power to appoint were listed as the protector for the time being or, if there was no protector, the settlor or, if the settlor had died, B1. The jurisdiction to remove the protector depended on a finding that her powers were fiduciary in nature. Section 15 of the Trusts (Guernsey) Law 2007 provided, inter alia, that the grant of a power does not, subject to the terms of the trust, impose a fiduciary duty on the holder. However, that limitation did not apply to the K Trust because it was established many years before the commencement of the 2007 law. Accordingly, there was nothing applicable in the 2007 law which made the powers of the protector, most of which had the hallmarks of being fiduciary obligations, anything other than ongoing fiduciary obligations. It followed, therefore, that the protector could properly be treated as a fiduciary, as distinct from the holder of personal powers, for the purpose of considering the relief sought by the application. In the absence of any relevant authority in Guernsey, it was preferable to adopt a decision of the Royal Court of Jersey (In the Matter of the A Trust [2012] JRC 169A) rather than the approach of the Courts in the Isle of Man (Re Papadimitriou [2004]) for the guiding principles on an application to remove a protector. These were akin to those applicable to the removal of a trustee, stemming from the principles laid down by Lord Blackburn in Letterstedt v Broers (1883) LR 9 App Cas 371. These principles showed that it was the welfare of the beneficiaries and the competent administration of the trust in their favour that founded the jurisdiction for the removal of a trustee and, by analogy, a protector. In this respect, the threshold for exercising the jurisdiction would be set too high if it could only be exercised in exceptional circumstances (as in the Manx case); rather it should simply be acknowledged that it was not a jurisdiction to be exercised lightly (as in the Jersey case). On the facts of the case, the applicants had demonstrated that grounds existed for ordering the removal of the protector but that the order should be stayed for a short period of time in case retirement was her preferred option. Clause 20 of the K Trust enabled the protector voluntarily to vacate office without being obliged first to appoint a successor in circumstances where the person with the power to seek her removal first invited her resignation. Indeed, in circumstances where the breakdown in relations was as final as it had become, it would not be in the best interest of the beneficiaries for the protector to seek to impose on the K Trust a successor in whom they did not necessarily have confidence. Accordingly, it was permissible for the protector to retire without needing to appoint a successor as protector and, in the event which occurred, the protector executed an instrument of retirement on 13 December 2014.
As regards to the protector’s application for an indemnity on retirement, in the absence of any express provision in the K Trust, the court should not confirm an open ended, blanket indemnity in abstract circumstances and there was not a clear enough assessment of what the protector’s liability might be or any real assessment of the level of risk to which she is, or might be, exposed. The protector’s primary concern had been addressed by the order for her removal or, alternatively, by her voluntary retirement, both of which removed the possibility that she would face any further liability in that regard – such an outcome with the effective blessing of the court absolved the protector from the risk of further action for breach of duty. As regards to the application that the protector deliver up all documents, including copies, in her possession or control relating to the K Trust, the principles which would apply to a former trustee on the appointment of a new trustee as a matter of Guernsey law, following the law of Jersey (In the Matter of the Bird Trusts [2012] JRC 006), which stemmed from Tiger v Barclays Bank Ltd [1952] 1 All ER 85, were not appropriate on the facts of this case. The protector had already agreed to provide all reasonable assistance and all relevant documents to her successor as protector of the K Trust. She had also recognised that, as a result of her office, she had duties of confidentiality and that those duties extended beyond the end of her term in office. In the absence of evidence identifying a real possibility that a confidence might be breached, it would be wrong to order the protector to deliver up everything in physical and electronic form associated with her term of office. So long as she supplied to her successor as protector of the K Trust all the material she had promised and stood ready to offer explanations in response to reasonable enquiries, in the same way as a former trustee would, she was rendering the same degree of assistance as any other holder of a fiduciary office and so should not be ordered to take the additional steps sought by the applicants. The same applied to copies in the possession of the protector’s advisors – the applicants had not established a basis for the court to make such orders and those applications were dismissed.
McMAHON R Introduction [1] This case arises from a loss of trust and confidence in the protector appointed in respect of a discretionary settlement (to which I will refer as ‘the K Trust’) and the adult beneficiaries of the K Trust. This situation led the applicants, being 11 of the 14 adult beneficiaries (who also …Continue reading "Re The K Trust Guernsey Judgment 31/2015"