Although the trust protector is a well-established fixture in the offshore trust world, and is increasingly encountered as a feature of onshore trusts, the law relating to protectors of trusts remains both complex and diffuse. Legislation and case-law dealing directly with the protector is scattered across the world’s trust jurisdictions, and many issues of fundamental importance remain unresolved by the courts. As Donovan Waters QC writes in his Foreword, ‘A sustained monograph is surely required, giving status to the subject and bringing together for the practitioner discussion of each of the interrelated issues that use of “protectors” entails. Andrew Holden’s seminal work takes up this challenge’.

Trust Protectors is the very first full-length work devoted to the subject of protectors, and is specifically designed to assist practitioners grappling with this rapidly-evolving area of the law. Clearly and simply written, it will serve as an introduction to the topic of protectors, a full synthesis of the well-established equitable principles bearing on that office, and an invaluable source of comment and guidance on the many questions that remain unanswered. Also included is a suite of reference materials: precedents to assist in the drafting of protector clauses; an anthology of statutory provisions relating to the protector; and a bibliography drawing together the existing literature.

Grounded on English law principles, but citing authority from all the major offshore and onshore trust jurisdictions – including the United States – Trust Protectors will be essential reading for both offshore and onshore practitioners dealing with the protector, as well as for professional fiduciary service providers seeking to acquire a fuller understanding of that role.

Andrew Holden, Barrister, XXIV Old Buildings
Consultant Editor – David Brownbill QC

• Dedication
• Foreword
• Preface
• Table of Cases
• Table of Statutes
• Table of Statutory Instruments
• Table of Foreign Legislation
• Table of Abbreviations
• Chapter 1 Introduction
• Chapter 2 Fiduciary Position
• Chapter 3 Appointment of Protectors
• Chapter 4 Powers
• Chapter 5 Limits of the Protector’s Powers
• Chapter 6 The Protector’s Duties
• Chapter 7 Rights of Protectors
• Chapter 8 Judicial Control of the Protector’s Powers
• Chapter 9 The Protector’s Personal Liability
• Chapter 10 The Trustees’ Relationship with the Protector
• Chapter 11 Death, Resignation and Removal of Protectors
• Appendix 1
  Precedents
• Appendix 2
  Statutory Materials
• Appendix 3
  Bibliography
• Index

Powers given to persons other than trustees have been widely used in wills and trusts since the early nineteenth century. However, it was during the last quarter of the twentieth century that practitioners in offshore jurisdictions around the world, from the Caribbean to the South Pacific, popularised in trust instruments the person who is empowered to exercise trustee-like authority in the management of trust affairs. The word, ‘protector’, was coined to describe anyone who had an independent power or powers as a non-trustee to intervene in the ongoing trustee/beneficiary relationship. The protection envisaged was presumably of settlors’ intentions, or beneficiaries’ interests, from poor trusteeship. In the early years the power might be simply to receive and check the trustee accounts, to ensure trustees are acting without conflict within the scope of their powers, and to assist in some manner or other when trustees and beneficiaries have differences. However, when intervention in the trust relationship, whether limited or extensive, takes the form of controlling the trustees in the exercise of their powers, such intervention reshapes trustee obligation and, if extensive, affects significantly the remedial aspect of the beneficiary’s rights.

The range of ‘protector’ powers, including administrative powers separate from those granted to the trustees, was of course open-ended. This was an innovation of trust practitioners. The very name given to this intervener varied, and continues to vary, according to the fancy of drafting counsel. Gradually, from an initial monitoring of the proper discharge of trustee duties, and a power to remove and appoint trustees, ‘protectors’ came to exercise an ever wider range of powers over trust asset management. Control increased. Decisions as to who should be beneficiaries, and distributions among them, were in part or in whole made by protectors. The movement offshore, once it had started, seemed to gather steam like a runaway train. In a setting of offshore jurisdictions competing with one another for estate planning business, the idea of a ‘protector’ was driven by onshore resident settlors who essentially wished to retain control of assets and to make investment decisions themselves. But it was not merely the apprehensions of the individual resident in London or New York, seeing title to his assets passing into the hands of foreign trustees on an island, possibly half a world away, that fomented this approach. Many of those creating trusts entertained the view that they were the people to make investment and beneficiary distribution decisions; professionals elsewhere, it was reasoned, would be less informed as to family corporate onshore operations, and also as to relations within onshore families. Ultimately, the settlors who sought to monitor and control included those resident in civil law or other non-common law jurisdictions: the trust concept, once outlined to them, might for whatever reason prove attractive, but for many placing ‘trust and confidence’ in the unsupervised titled ‘management’, let alone integrity, of the offshore trustee was decidedly not.

Nevertheless, the subject of protection and ‘protectors’ is one on which there remains but a small amount of case law and little statutory reference. Moreover, law expressly on the subject of intervention powers still exists only in offshore jurisdictions. Trust texts throughout the Commonwealth’s principal onshore jurisdictions extend from those that describe shortly and provide case authority for the powers given to ‘protectors’ by offshore trust instruments, to other texts which ignore the subject or refer to the whole phenomenon in a few lines. In practice and in academe across the onshore common law world there are those who see this control-intervention use of powers as conceptually contradictory, and functionally destructive, of the very relationship of trustee and beneficiary that is the trust. What is needed, it is said, are not interveners but informed and able trustees.

However, throughout the past decade the use of protectors to monitor, dismiss and appoint, veto the decisions or direct the activities of trustees, has grown. Protectors, individual or corporate, appear routinely in offshore trusts, whether the instrument is drawn offshore or onshore, and powers of intervention – at present more of a monitoring character – are now appearing in onshore domestic (or internal) trusts. I have in mind here, not the state legislation in the United States, but practice in the provinces of Western Canada, which are part of the Commonwealth tradition. Nor, when one thinks of it, should this occurrence be surprising.

In the first place traditional trust practice for over one hundred and fifty years has given powers of appointment of beneficiaries to trustees, to selected beneficiaries, or to third parties who are otherwise strangers to the trust. Powers of maintenance and of advancement are equally traditional. The power to revoke is axiomatic, and onshore trusts will not infrequently contain the grant of powers to vary administrative or dispositive trust terms, and to terminate the trust. Secondly, many drafting counsel are sufficiently familiar with the ‘protector’ offshore that with settlor or beneficiary advantage in mind they readily recognise circumstances for using such a power holder in domestic trusts. Imagine, for instance, a ‘protector’ whose tailored task it is to monitor the trustee management of a trust exclusively for minors or elderly persons. Thirdly, trustee control is not a new practice. Since the nineteenth century settlor-reserved powers, such as the power to approve the sale of a house or of specific corporate shares, have been well established, albeit limited as in the above example in the degree to which they control the trustees. From time to time in contemporary practice, inspired perhaps by corporate shareholders’ powers and pension plan trusts, limited administrative control powers in trust beneficiaries are now met. And there is more. The power to remove and replace trustees granted to a principal adult beneficiary, with all the potential control implications that that has, seems accepted practice. Indeed, the limited number of mandatory rules in the law of trusts itself suggests that, absent statutory prohibitions, the common law system ultimately leaves the character of his trust instrument to the settlor’s choice.

The distinction between the traditional powers of appointment, of maintenance and advancement, and the intervening control powers of today that are capable of reducing the trustee almost to bare trusteeship, is of practical as well as conceptual importance. It is therefore striking that there is not more in print to assist those who draft. There is the description in international trust texts of such ‘protector’ case law as exists, plus the sparse statutory law. And in addition there are a number of journal articles tackling the jurisprudential issues involved with these control powers. However, the practitioner, offshore or onshore, is faced with a span of practical issues that should be considered prior to any introduction of ‘protectors’ and non-trustee control authority.

Suppose one is faced with drafting or producing a critique of another’s draft. The drafter may well think of successor ‘protectors’, accountability, unfitness to act, and in general the consequences of disagreement between ‘protector’ and trustees. Nor would that drafter deny the ease with which one may slip into ambiguity in drafting powers. For instance, it must be demonstrably clear whether a  power is intended to be personal, as opposed to the more familiar fiduciary power. But how many of us, when engaged on such a task, would reflect whether a ‘protector’ with fiduciary powers may also be given personal powers? And would we consider and inquire into the laws governing the trust as to whether, if a corporate ‘protector’ in an offshore trust goes into receivership or liquidation, the receiver or trustee in bankruptcy is in a position to exercise the ‘protector’ powers? Drafting for future sunlit days is one thing, but everyone is aware that the real test of any draft is the presence of appropriate provision for the unexpected occurring. It is no different when drafting powers. At what point in providing for these occurrences does the draft pass from a practical document to something prolix and cumbersome, replete with provisos and qualifying clauses? Such an outcome – construction advice seems needed at every turn – is less than helpful for the trustees and the ‘protector’.

A sustained monograph is surely required, giving status to the subject and bringing together for the practitioner discussion of each of the interrelated issues that use of ‘protectors’ entails. Andrew Holden’s seminal work takes up this challenge. Clearly and simply written, and within a relatively short space, the author provides coverage of the questions that the practitioner should be asking from the moment that a ‘protector’ is proposed to the closing considerations of the liabilities and indemnities to be attached to the appointment. Where ‘protector’ law does not exist, the author makes it plain that he is discussing the issue by reference to the case-law concerning the trustee in a similar position, or to the law governing powers in general that are used in wills and inter vivos trusts.The degree of appropriateness of the analogy being drawn the author is not shy to leave to the reader, but thought and argument are provided for the practitioner looking around for help.

To be the first to write at book length on a subject, much of which is yet to be considered by the courts or even recognised by onshore legislation, requires both experience in the field, and the mettle of a musketeer. The need of the practitioner nevertheless exists and Andrew Holden puts us all in his debt by assuming the task. His work, which it is my pleasure to welcome, will be of particular interest to those practicing in England and Wales, and in the present and former British territories offshore and overseas. But it is not likely that interest will stop there.

Donovan Waters QC
Victoria, British Columbia
Canada

The aim of this book is to provide an overview of the law relating to trust protectors that will be of use in everyday practice. The practitioner who works with the protector concept on a regular basis will immediately see the difficulties inherent in this task.

As Donovan Waters QC recounts in his enlightening Foreword, the protector is a newcomer to the world of trusts. Developed principally in the offshore trust context, protectors are now an established fixture of the offshore trust world, and are increasingly cropping up in the main onshore common law jurisdictions. But the burgeoning use of protectors means that, to some extent, practice has outpaced the law. In order to provide a cogent account of the law of protectors, three key obstacles must be overcome.

First, because the protector is predominantly a creature of practice, it is impossible to lay down rules that will apply to every person referred to in every trust instrument as a protector. As we shall see, the word ‘protector’ is not a term of art, and it can be used to refer to different roles with different powers, duties and rights under the trust.

To begin to overcome these difficulties, the introductory chapter to this book provides a working definition of the term ‘protector’, which serves as a basis for the analysis in the remainder of the work. However, the mere act of defining the subject-matter of the analysis does not lessen the difficulty of stating principles that will apply to protectors generally. Because the protector is created and largely defined by the express terms of the trust instrument, it is impossible to do more than state the absolute limits placed by the law on those drafting the trust, as well as the principles that apply in default of any express provision. But these are very wide confines, in which there is enormous freedom to tailor the role of protector to suit the needs of the particular trust. Indeed, this flexibility is itself a reason for the large and growing popularity of the protector.

Secondly, the protector is primarily a creation of the international trust industry, which is itself based in a variety of jurisdictions around the globe. This provenance inevitably means that the protector is a multi-jurisdictional phenomenon: to give an account of the law of any one jurisdiction would be to fail to capture the international aspects of the law of protectors. My solution to this difficulty – the natural consequence of my own practice – has been to base this book primarily on English law principles. My view is that, by using English principles of equity as a foundation, and by building on that foundation by reference to material from many jurisdictions informing the concept of the protector, it is possible to engage in a coherent analysis of the ‘law of protectors’ without thereby providing a definitive statement of the law of any one jurisdiction.

Accordingly, I hope that the material in the book will be of use in every jurisdiction that has adopted equity as part of its law, including the major onshore Commonwealth jurisdictions. That said, no practitioner – not even an English practitioner – will be able to assume that the propositions stated in the work apply in every case. In using the book, practitioners must engage with the text, testing the propositions and the authority cited against the law of the particular jurisdiction in question. It is only through a process of constructive engagement that the work will be of any value. The third difficulty grappled with in this book is the extent to which the protector is an interloper in the traditional relationship between settlor, trustee and beneficiary. If the protector has the potential to improve the administration of the trust and increase the accountability of the trustee to the beneficiaries, the use  of a protector can also risk destabilising the trust itself. Setting the precise boundaries on the use of protectors is extremely difficult, and takes the book into relatively uncharted waters. In this book, I have attempted to state my own view of the limits on the use of protectors, and on how the empowerment of a protector impacts on the continuing obligations and rights of the trustee and beneficiary. However, it is critical for the practitioner to bear in mind that this is an evolving area of the law: the true extent of the restrictions on the use of protectors will become clearer only when the courts have had a proper opportunity to evaluate the role.

Given these difficulties, this book is no more than a first step towards a unified and coherent statement of the law of protectors. However, it is hoped that the book will serve trust practitioners in various ways: as an introduction to the topic of protectors; as a synthesis of the various well-established equitable principles that bear upon the office of protector; as a source of comment and guidance on the many questions left to be answered in this rapidly-evolving area of law; and as a source book of precedents, statutory materials, and a summary of the existing literature. If it serves those functions well, this book will have achieved its goal.

In producing this account of the law of protectors, it will be apparent that I have relied throughout on the existing literature on the law of trusts and powers. I have referred to the leading English, American and Commonwealth trust and equity texts, including Snell, Underhill & Hayton, Thomas & Hudson, Scott & Ascher, Jacobs, and above all to Lewin, without which I could not have produced this volume. For the law of powers and powerholders – a topic of central importance throughout the book – I have relied heavily on Thomas on Powers, which laid the intellectual groundwork for all modern discussion of the English law of powers, and again without which this book could not have been written. I await the second edition of that work with eager interest. I would like to acknowledge my debt to those who have taken the time to read and comment on this work: Dr Matthew Conaglen of Trinity Hall College, Cambridge (and my colleague in chambers) read and provided his detailed comments on chapters 2, 6 and 9 of this work. As will be apparent, he and I are in broad agreement in our analysis of the fiduciary concept, and his comments improved those chapters immensely.

Anthony Duckworth, a Cayman practitioner and leading commentator on the law of protectors, also read and provided his comments on parts of the manuscript. I think Anthony and I take slightly different views on the best approach to categorising the duties of protectors – though I suspect my views on what the law should be are rather more similar to his own – but his comments were nonetheless extremely useful in clarifying my own thoughts.

Professor Geraint Thomas of Queen Mary, University of London also kindly took the time to read and comment on a draft of this work. His comments naturally carry the authority of the leading modern commentator on the English law of powers, but were also both incisive and constructive: they have markedly improved the text.

As well as agreeing to write his generous and illuminating Foreword, I am also grateful to Professor Donovan Waters QC for taking the trouble to read and comment on the manuscript. Again, the weight given to his comments by his own writings on the subject of protectors was matched by their thoughtfulness and attention to detail.

I am fortunate to be part of a set of chambers with an unrivalled experience of international trust litigation, and I thank all of my colleagues for their assistance in providing the raw materials for this project – authorities, books, and their own views and analysis. In particular, I am grateful to Adam Cloherty and Owen Curry for their assistance. Parts of this book were also produced, read, discussed or refined during my time at AO Hall Advocates in Guernsey, and latterly at Withers LLP in London. I owe a debt of gratitude to both firms for their hospitality and their support. Above all, my thanks go to my colleague David Brownbill QC. When I approached David to act as the consultant editor for this project, he readily agreed to take time out of his busy schedule to perform that role. As well as overseeing the project, he has since devoted an enormous amount of his time to reading the manuscript, to discussing with me the many complex and unanswered questions that arise, and to providing detailed and helpful suggestions on the contents of the book – from overarching themes and structure to the use of individual words. The time and effort he has devoted to the project were far beyond the call of duty, and have improved the book substantially.

In benefiting from the wisdom and encouragement of those mentioned above, I should say that the opinions expressed in this book are my own, and that I am solely responsible for the errors and omissions that must inevitably remain. I would like to thank Jordan Publishing for its encouragement and support throughout the production of this book, which certainly encountered its fair share of setbacks. I am grateful to Mary Kenny for agreeing to take on the project; to Kate Hather for dealing with my broken promises with equanimity; and to Tracy Robinson for her work on the typesetting.

Finally, I must express the huge debt I owe to Myfanwy for having supported me through this project over the course of several years. For all those holidays that were used up amongst piles of textbooks and by the computer, this book is dedicated to her.

Whilst this book does not attempt to state the law of any particular jurisdiction, I have tried to ensure that the book is up to date to August 2011. In particular, I have tried to incorporate a full analysis of the highly significant decision of the Court of Appeal in the conjoined appeals of Pitt v Holt and Futter v Futter [2011] EWCA Civ 197, which is now set to be heard by the UK Supreme Court, and which goes to show that the law is a quicker beast than any writer.

Andrew Holden
XXIV Old Buildings, Lincoln’s Inn
St Augustine’s Day 2011

"the aim of the book is 'to provide an overview of the law relating to trust practitioners that will be of use in everyday practice', yet the book serves equally well as an introductiion for those without prior knowledge of trust protectors and as a useful tool for practitioners seeking clarification or guidance....This book will greatly assist practitioners, particularly those who draft trust investments, as well as trustees, beneficiaries and indeed trust protectors themselves. All in all, this is a very useful and practical book."
Henry Frydenson, Chairman of ACTAPS and Principal of Frydenson & Co