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.
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.
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.