These proceedings were brought by the primary beneficiary of a Manx trust (the Manx Claimant) which is one of four family trusts (the Trust), all of which are the subject of hostile litigation in Italy in which various beneficiaries of the four trusts (including the Manx Claimant) are inter alia challenging the validity of the trusts under Italian forced heirship laws (the Italian Proceedings).  In a context where the trustee was opposed to the Manx Claimant in the Italian Proceedings, the Manx Claimant sought an appointment of a protector to the Trust, the former protector having resigned in 2017 upon the issuing of the Italian Proceedings.  The trustee declined to appoint a protector and the Manx Claimant issued a claim in the Isle of Man seeking the assistance of the Court with both the construction of the Trust deed and with the reasons given for not appointing a protector by the trustee.  Having been unsuccessful at first instance, the Manx Claimant issued an appeal.

Construction

The carefully-considered judgment examines in detail the parties’ arguments surrounding a power which at first blush appeared to be a mere discretionary power (the Trust deed stated the trustee ‘may’ appoint a protector), and whether that power could be considered a blended power.  The Court looked at how the exercise of that power fitted into the wider context of the trustee’s duties and the circumstances of the Trust.  Whilst the Court concluded that the power was, in fact, discretionary, it went on to emphasise the importance of making a reasonable decision within the context of the surrounding circumstances, and by looking at the factors which the trustee should have taken into account in deciding how to exercise its power to appoint a protector, the features which the Manx Claimant identified as reasons the power should be construed as a blended power were relevant to the context in which the trustee had to consider the request.

Review of the trustee’s reasons

Having carried out a detailed review of the trustee’s four stated reasons for deciding not to appoint a protector at that time, the Court reached the conclusion that three of them were irrelevant and the remaining one was, at best, doubtful.  It also found that there were a number of issues the trustee had failed to take into account and / or appreciate, including that there was a direct conflict of interest in the circumstances.

Conclusion

The Court concluded that, in the context of this Trust, the proper way to construe the blended powers argument was to acknowledge that while the power to appoint a new protector was not an imperative power, there should nonetheless be a substantial and proper reason for not appointing a protector if that is the issue in question.  This was particularly so given that all the adult beneficiaries of the Trust considered that a protector should be appointed.  The trustee was ordered to reconsider its decision.

A careful read of this judgment will provide trustees with a useful guide as to the sort of things it should be taking into account when exercising discretionary powers, and provides something of a cautionary tale to trustees who fail to consider relevant factors or consider the potential for their own conflicts of interest.

Appleby represented the Manx Claimant in these proceedings.

Appleby advise on all aspects of trust law, including the establishment, administration, restructuring and termination of private, charitable, and commercial trusts and foundations. We act in a personal capacity as Protector, Enforcer and Director (of Private Trust Companies) for a number of discretionary trusts and are frequently instructed by blue-chip trust institutions.

Type

Insight

Locations

Isle of Man

Key contacts

Charles Davies

Partner: Isle of Man

T +44 (0)1624 647 622
E Email Charles

Erin Trimble-Cregeen

Senior Associate: Isle of Man

T +44 (0)1624 647 914
E Email Erin

Share
Twitter LinkedIn Email Save as PDF
More Publications
30 Jul 2021 |

Fighting international fraud

First published in New Law Journal, July 2021. Appleby partners Anthony William and Jared Dann an...

Contributors: Jared Dann, Claire Corkish
18 Jun 2021 |

Isle of Man – Extension of Economic Substance Requirements to Partnerships and Limited Liability Companies

The Income Tax (Substance Requirements) Order 2021 was approved by Tynwald on 16 June 2021.  This O...

12 Mar 2021 |

Material adverse change clauses in light of the Covid-19 pandemic

Experts from each of our key global offices provide jurisdiction specific advice and answer question...

8 Mar 2021 |

Appleby Celebrates International Women’s Day

International Women’s Day is celebrated annually in support of gender equality and equal participa...

8 Dec 2020 |

The International Comparative Legal Guide to Gambling 2021 – Isle of Man Chapter

This chapter was first published in The International Comparative Legal Guide to: Gambling 2021, by ...

Contributors: Sophie Corkish
30 Oct 2020 |

When Worlds Collide – How COVID is Connecting Technology with Natural Resources

Dating back to the beginning of 2020, the natural resources sector has been extremely active at both...

Contributors: Peter Colegate