On 14 July 2015, in the matter of the K Trust, the Royal Court of Guernsey (the Guernsey Court) applied the principles established by Jersey case law for removing a protector.
The Guernsey Court concluded that the approach to this jurisdiction should be the same as that applied by the Royal Court of Jersey (the Jersey Court) in the case of the A Trust [2012] (which looked to the English authority of Letterstedt v Broers (1884)), namely that it is not a jurisdiction that should be exercised lightly and that it must be established that any protector continuing in office would have an adverse impact on the welfare of the beneficiaries and the competent administration of the trust.
This case comes as a timely reminder to ensure that, where a protector is appointed to a trust, the trust instrument adequately provides for the removal of the protector in all eventualities.
BACKGROUND
This case concerned a discretionary settlement, which was referred to as "the K Trust". The application was brought by 11 of the 14 adult beneficiaries of the K Trust, requesting that the protector of the K Trust be removed by the Guernsey Court with immediate effect.
The beneficiaries had lost trust and confidence in the protector following a breakdown in relations between the protector and the settlor's wife, rendering the trust "unworkable", as most of the powers of trustees required the protector's consent. The final straw was the act of the protector seeking tax advice in relation to an issue that everyone else considered had been adequately addressed. The judge in the Guernsey Court viewed this as a clear demonstration of something going beyond mere mutual hostility and distrust.
EXPRESS POWERS IN THE TRUST INSTRUMENT
The trust instrument did contain a power to remove the protector, but this power was vested in the person who had the power to appoint an additional or replacement protector – namely, the protector herself.
The protector did have the power to retire from the role, but only upon the appointment of a replacement protector. The beneficiaries were concerned that similar issues would arise with her choice of replacement protector, and so sought the removal of the existing protector without replacement.
CONSIDERATIONS
In the absence of Guernsey case law, the Guernsey Court considered case law deriving from similar applications in other jurisdictions, including cases from the Isle of Man and Jersey.
The Guernsey Court's attention was brought to the Isle of Man test established in the case of Re Papadimitriou, where Deemster Cain ruled that "the court would only remove a protector when it was essential to prevent a trust failing". The Guernsey Court noted that this was a high standard to satisfy and so considered the approach of the Jersey Court in the case of the A Trust where the Jersey Court acknowledged the dictum of Lord Blackburn in Letterstedt v Broers that: "in exercising so delicate a jurisdiction as that of removing a trustee, their Lordships do not venture to lay down any general rule beyond the very broad principle above enunciated, that their main guide must be the welfare of the beneficiaries".
In this case, the Guernsey Court considered that the role of the protector was fiduciary, but noted that following existing case law on the Guernsey Court's powers in relation to application brought under section 69 of the Trust (Guernsey) Law 2007, the Guernsey Court would have had the power to remove the protector whether the status of the protector was fiduciary or not.
CONCLUSION
The Guernsey Court preferred the less restrictive approach of the Jersey Court and, whilst acknowledging that this is not a jurisdiction to be exercised lightly, concluded that the protector of the K Trust be removed from office.
Deputy Bailiff McMahon explained that "the evidence of the breakdown in relationships and how that had resulted in the K Trust's affairs not being progressed as perhaps otherwise they would have been, in my judgment, satisfies the test and justifies the making of an order for removal". He added that "she should have realised much earlier than she apparently did how untenable her position had become".
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
