A 19 March ruling from the Judicial Committee of the Privy Council has reset the balance of power between trustees and protectors in some trusts. The ruling came in response to an appeal from a case in Bermuda but is likely to be felt across offshore jurisdictions such as Cayman, where the Privy Council is the final court of appeal.
A protector has the power to veto a proposed decision by a trustee but until now – and depending on the terms of the trust – the extent of that veto was debatable. Some considered that the protector could only veto the decision on the grounds that it was illegal or irrational. This, so-called ‘narrow role’, was upheld in recent cases by the Supreme Court of Bermuda and the Court of Appeal of Bermuda.
But the Privy Council rejected that narrow rule for protectors. This means that now, instead of simply checking that a trustee decision is legal and rational, protectors can – and again this is subject to the terms of the trust – use independent discretion to decide if they want to veto a decision.
Why it matters to Cayman
As a major offshore centre, Cayman has numerous trustees and protectors. In June 2024 judgement of the Grand Court of the Cayman Islands, Judge Ian Kawaley acknowledged that the extent of a protector’s power remained “controversial”.
“This is a much anticipated and monumental decision for offshore trusts and trust protectors globally,” said Shelley White, head of the Cayman Islands trust disputes team at Walkers. “This judgment is a clear signal that trust protectors are not simply there to rubber stamp trustee decisions.”
White told the Compass that even though the ruling hadn’t yet been tested in Cayman courts, the ruling is likely to be highly persuasive. This means the relationship between trustees and protectors could fundamentally change.
“There is no doubt this judgment raises the bar,” said Hannah Tildesley, a trust litigation specialist from Walkers’ Bermuda office. “Major decisions will need to be clearly reasoned, well evidenced and discussed earlier with protectors, who are entitled to question not just how a decision was made, but whether it is the right one.”
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