Ambit of the role of protector

“Protectors,” although are not a common feature of New Zealand trusts, they are not entirely unheard of.   While there is no barrier to the appointment of a protector the term protector is not defined in the Trusts Act 2019.

The role of the protector developed in offshore jurisdictions where it was more common for the settlor not to be a trustee and so the need arose for there to be someone to keep an eye on things.  There is no legal definition of protector, and the role is as big or as small and has as many (or as few) powers as the trust deed proscribes. For some history of the role of protector in New Zealand see Protector Powers – fiduciary or not.

More recently the ambit of the role of protector was considered by the Board of the Privy Council in the anonymised decision of A v C .  In that case the Privy Council was asked whether the role of the protectors in the cases before the Board were “limited solely to reviewing the lawfulness of the trustees’ proposed exercise of their power, or whether the protectors are empowered also to use an independent discretion in deciding whether or not to consent, by reference to their own view of the merits of the trustees’ proposal.”  For the purposes of the proceedings the options were labelled “the Narrow Role” and the latter “the Wider Role”.

History

In the UK as with New Zealand, the role of protector is not widely used.  As set out at [5] to [8] in A v C:

5.            The office of protector, as provided in the trust deeds in the present appeal and in the deeds establishing or governing many settlements in Bermuda and other offshore jurisdictions is rarely seen in UK-based trusts. That is not to say that UK-based trusts have never provided for persons who are not trustees to have fiduciary powers to direct or control actions by the trustees: see, for example, Vestey’s Executors v Inland Revenue Comrs [1949] 1 All ER 1108. But the office of protector with fiduciary powers of the sort seen in the present appeal has become a common feature of offshore trusts, almost always with settlors and beneficiaries resident elsewhere.

6.            There is consensus among practitioners and others who have written on the subject that provision for the appointment of protectors in offshore trusts has been common since the mid to late 1980s. Their powers will vary from trust to trust, but frequently include, as in the present case, a requirement for their consent to any appointment of capital. The requirement for their consent to dealings with certain securities held by the trusts, which is an important feature of the trusts in this appeal, is less widespread but by no means uncommon.

7.            It is impossible to define the powers that a trust instrument may confer on a protector but other frequently found examples include powers to direct or veto the appointment and removal of trustees, additions to or exclusions from the class of beneficiaries, the provision of information to beneficiaries and changes to the governing law of the trust. As will be seen, in the case of the trusts in the present appeal, the protectors’ powers extend beyond their powers as regards capital distributions and dealings with securities. There is a useful discussion of the range of powers that may be conferred on protectors and common reasons for their appointment in Duckworth, “Protectors – Fish or Fowl?” [1996] PCB 169, 169–173.

8.            As most commentators agree, it is not difficult to understand why settlors, particularly of family settlements, find provisions for protectors to be attractive. If a settlor establishes a trust in his or her home country, the settlor can ensure the appointment of trustees with knowledge and understanding of the settlor’s family and of the settlor’s wishes and approach to family matters. Such trustees might include the settlor, family members or trusted friends or advisers. This is not, however, usually possible in the case of offshore trusts. The settlor and his or her family will usually have no personal connection with the country in which the trust is established. Local trustees, usually local trust companies, will be appointed as the trustees but they will rarely have any close knowledge or understanding of the settlor’s family. As counsel for the respondent Page 3 submitted at first instance in the present case, the parties were agreed that “protectors may be geographically and personally closer to the settlors and the beneficiaries than are potentially more or less remote, distant, offshore trustees”: see the judgment of Kawaley AJ, [2021] SC (Bda) 72 Civ; (2021) 24 ITELR 586, para 58. Gloster JA (with whose judgment Clarke P and Maurice Kay JA agreed) acknowledged that protectors “are likely to be closer personally to a settlor or the principal beneficiaries” than the trustees: [2023] CA (Bda) 4 Civ; (2023) 27 ITELR 1, para 98.

In determining the matter the Board considered wide-ranging submissions regarding the appropriate breadth of protector powers and canons of construction.  However, the ultimate decision was that essentially the question put to the Board was the wrong question.

As noted at [82] and [84]:

[81] “… The issue was presented to the Board as a binary choice between two different default roles for protectors appointed under the provisions of a trust instrument which did not spell out their role in express words. Reflecting discussion in commentaries, the issue has been presented as if the Board has to assume that the settlor must have had in mind one or the other of those two roles, the task for the Board being just to decide which.

83.         The Board does not consider this to be the correct approach. Where (as here) the settlor has made provision for one or more persons (calling them protectors) to exercise precisely defined powers, including powers to approve or disapprove steps being proposed by the trustees in the appointment and administration of the trust property, but remained silent about how those powers should be exercised, the question is not which of two roles was specified (Narrow or Wider) but rather: what if any constraints did the trust instrument actually impose, construed in its context and with regard to any constraints imported by the general law?

84.         This is the correct question because, speaking generally, the imposition of a requirement that a person (“A”) obtains the consent of another person (“B”) before doing something places B under no constraint at all in the exercise against A’s proposal of what is in substance a power of veto, save perhaps an obligation of good faith. Probably the most familiar example known to the law is the frequently found requirement in leases that the lessee obtain the landlord’s consent before assigning the lease, underletting, carrying out improvements, or even keeping a pet on the demised premises. A requirement not to withhold consent unreasonably may be imposed by statute, or contained in the lease, but it is not inherent in the power of veto or generally implied by law: see: Guardian Assurance Co Ltd v Gants Hill Holdings Ltd [1983] 2 EGLR 36 at 37; Price v Bouch (1986) 53 P & CR 257, and Cryer v Scott Bros (Sunbury) Ltd (1986) 55 P & CR 183.

Role of Protector

The key points of the decision can then be summarised as:

• there is nothing in the use of the words “protectors” or “protectorate” as labels for the appointees that sheds any useful light on the answer
• the fact that “protector” includes the verb “protect” does not assist. A power of veto over the trustees’ decision making can fairly be described as protective
• a Narrow Role protector may be said to be there to protect the beneficiaries’ rights and expectations from being harmed by unlawful conduct by their trustees
• a Wider Role protector may be said to be there, for example, to protect the beneficiaries and the settlor from the exercise of discretionary powers by the trustees which, however lawful, stray unacceptably far from the family’s general expectations
• the fact that a protector role is introduced by a trustee rather than a settlor is not determinative as to construction
• where a trust’s purposes are to be achieved by trustees and protectors working together, it is blinkered to regard the beneficiaries’ rights as being ,limited to those that consist of or flow from the lawful performance of trustees alone
• the ambit of the role of protector is to be determined by reference to accepted rules of construction
• where trust terms include professionally drafted Protector Provisions that confer powers of veto the settlors must be taken to have known or been advised as to the constraints upon decision-making undertaken by the acceptance by the Protectors of fiduciary responsibilities in carrying out their allotted tasks and it must be inferred, as a matter of construction, that in the absence of a more precisely specified role for the Protectors this does not limit the role or compromise fiduciary obligations

References:

• A v C [2026] UKPC 11
• Guardian Assurance Co Ltd v Gants Hill Holdings Ltd [1983] 2 EGLR 36 at 37
• Price v Bouch (1986) 53 P & CR 257
• Cryer v Scott Bros (Sunbury) Ltd (1986) 55 P & CR 183
• Protectors – Fish or Fowl?” [1996] PCB 169, 169–173.