Analysis
The trustees of two Jersey trusts known as the Piedmont Trust and the Riviera Trust made a Public Trustee v Cooper Category 2 type application for a ‘blessing’ of their decision to make distributions that would exhaust the funds of those trusts.
Detailed background to the trusts and of disputes that had previously arisen in relation to them was set out in Re Jasmine Trustees Ltd and Piedmont Trust [2015] (the 2015 judgment) and Re Piedmont Trust and Riviera Trust [2018] (the 2018 judgment).
The Piedmont Trust was a revocable discretionary trust established by deed in April 2000 and since February 2011 Jersey law had been the proper law of the trust. The Riviera trust was a Jersey law revocable discretionary trust established in June 2010. About half the assets of the Riviera Trust were appointed to it in 2010 from another settlement referred to in the judgment as the S Trust, which had similar beneficiaries. The trusts were established primarily to benefit members of a family referred to in the judgment as the father, his three children (a daughter and two sons) and his grandchildren. By the time of the hearing the grandchildren were the six adult children of the sons and the daughter’s minor child.
The father had been the original protector of each of the trusts but had retired as protector in 2014. The powers of the protector were expressly fiduciary or, where this was not the case, had been held to be so by the 2015 judgment.
By 2010 differences had emerged between the father and his daughter. This resulted in litigation in the US regarding the ownership and control of family companies and in Jersey in relation to the trusts. In this litigation the father and his sons opposed his daughter. The net effect of the earlier Jersey litigation, which gave rise to the 2015 judgment and the 2018 judgment, was that the trustees remained those originally appointed and that in January 2019 Rysaffe became the protector of each of the trusts (the protector). In 2019 the trustees formulated a proposal for the distribution of the trusts’ funds (2019 proposal). The protector indicated it would not consent to distributions made on that basis. The father died in April 2020.
In February 2021 the trustees decided in principle – subject to the consent of the protector, the approval of the court and questions of implementation – to terminate the trusts and to distribute their net assets of about US$42m. The result of the distributions would be that a little less than US$4m would be distributed to each child and a little more than US$4m would be distributed to each of the adult grandchildren, about US$5.5m would be distributed to the daughter’s child, and US$0.5m would be distributed to another beneficiary. The protector consented to these distributions. The trustees then sought the court’s approval. In the course of the application the trustees took further tax advice, following which in June 2021 they confirmed their February 2021 decision, subject to the same caveats, and the protector again consented.
Opposing the application, the daughter and her child took the position that they would receive too little under the trustees’ decision, particularly in view of the UK tax which the further tax advice taken by the trustees after February 2021 indicated they might be liable to pay. They argued that by June 2021 the trustees were subject to a conflict of interest arising from potential claims against them from other beneficiaries in respect of the UK tax affairs of the trusts, such that they ought to surrender their discretion to the court. They also argued that the trustees had paid insufficient regard to letters of wishes relating to the trusts and the S Trust.
Also opposing the application, the adult grandchildren took the position that the daughter and her child would receive too much. They argued that the trustees ought to have supplied further information to the protector regarding the 2019 proposal and that the role of the protector when exercising powers of consent was akin to the role of the court when asked to approve a momentous decision. They argued that, consequently, the protector had been wrong to refuse to consent to the 2019 proposal and that the trustees’ decision-making process following that wrongful refusal was flawed. The protector argued that its powers to consent were not limited in that way and required the exercise of an independent fiduciary discretion.
Held:
The court approved the trustees’ decision.
The court will approve a trustee’s decision if it falls within the band of decisions which a reasonable trustee, properly instructed, could reach, on the assumption that it is a momentous decision which is reached in good faith and is not vitiated by any actual or potential conflict of interest, Kan v HSBC International Trustee Ltd [2015] applied.
No adverse claim which might reasonably have influenced their decision had been made known to the trustees before the date of their final decision. Accordingly and in any event the trustees’ June 2021 decision had not been vitiated by conflict of interest.
It was not necessary for the trustees to show that there were objectively reasonable grounds to diverge from the terms of letters of wishes when seeking the court’s approval. Trustees are never free to ignore a letter of wishes, in the sense of not looking at it or not considering whether the wishes should be followed or departed from. They are however free to decide what, if any, weight to give to the terms of a letter of wishes. The approach of the trustees to the letters of wishes in this case had therefore been correct.
The trustees had been wrong to refuse to provide the protector with details of their reasons for putting forward the 2019 proposal.
The settlor had decided that a protector should be appointed pursuant to the trust deed and had specified those matters where the protector’s consent was required. The settlor must be taken in those circumstances to have intended that the protector should exercise their own judgement in exercising those powers. If the role of a protector was to review the trustee’s decision in the same way that the court would do, their role would be almost redundant where an application for approval by the court was made. A protector may well be entitled to veto a decision of a trustee that the court would bless, Re X Trusts [2022] doubted. It is not the duty of the protector to take that decision themselves or to force the trustee into making the decision which the protector would make if they were the trustee by stating that they will only consent to a particular decision. The conduct of the protector and the trustees in respect to the 2019 proposal and the trustees’ 2021 decisions had been consistent with the proper exercise of the protector’s powers of consent and the trustees’ decision-making process had not been flawed. The trustees’ 2021 decisions were reasonable.
JUDGMENT SIR MICHAEL BIRT: [1] This is an application by the Representors as trustees of two trusts for the approval of the Court of their decision to appoint all the assets of the trusts amongst the beneficiaries in specified proportions. Although all the beneficiaries are agreed that the trusts should be terminated, there is disagreement …Continue reading "Re Piedmont Trust and Riviera Trust [2022] WTLR 1403"