The Guernsey Court has recently considered an application to set aside two dispositions on the grounds of mistake, rendering it necessary to give consideration to how serious a mistake should be to render it unjust for the recipient of property to be allowed to retain such property.

The applicant was previously the beneficial owner of a pharmaceutical company and wanted to sell her shareholding in the company for her own personal benefit. The applicant was interested in investment strategies and, therefore, consulted a wide range of investment advisers who advised her to establish a trust structure.

The first disposition was done at an early stage in the process of establishing the structure. For tax purposes it was necessary for the company to transfer out £500,000. The applicant's advisers suggested that the applicant transfer this sum into a trust, from which the applicant could benefit by taking loans, which would result in tax savings for the applicant. The money was transferred into the client account of the proposed trustees, pending the establishment of the trust.

Following this, the trust was established and the applicant transferred 100,000 of her ordinary shares in her company to the trust. Unfortunately, the applicant was poorly advised and was not given a copy of the trust instrument to review prior to signing. As such, despite the applicant wishing to establish a trust for her benefit, a remuneration trust was set up to benefit the employees of the company and the applicant was named as an excluded person of this trust. This was established despite it being made clear by the applicant that the company had an employee benefit trust already in place.

The applicant, therefore, applied to the Royal Court of Guernsey for an order that the disposition of the sum of £500,000 and the transfer of the shares be set aside on the grounds of mistake.

The trust was governed by the law of England and Wales and, as such, the Court applied English law when considering the application. The Court confirmed the general rule, as set out in Ogilvie v Littleboy and as re-affirmed in Pitt v Holt, that a gift should only be set aside if the donor can show that they were under a mistake of so serious a character as to render it unjust for the donee to retain the property given to them.

The Royal Court decided that the transfer of the shareholding was a sufficiently serious mistake and ordered that the shares be transferred back to the applicant. In deciding this, the court noted that the likelihood of someone transferring the vast bulk of their wealth in circumstances where they are unable to benefit is remote. The Court was satisfied that this was such a momentous decision for the applicant to have taken and the difference between the effect of the transaction as the applicant understood it and the actual effect was so great that the transfer should be set aside.

However, the Court did not feel there had been a sufficient mistake by the applicant when transferring the sum of £500,000 to the trust. The Court noted it was always the intention of the applicant to set up a trust and transfer this sum into the trust. In turn, the applicant intended to benefit by way of loans from the trust. This was emphasised by the applicant being invoiced in discussions for a potential property purchase through the trust structure, suggesting that she understood how her contribution to the trust would work and how she would, in turn, benefit.


Ultimately, this decision has reinforced the high level of gravity that must be shown in order to establish a mistaken gift. The donor must not understand the effect of the transaction itself; a mistake as to the consequences or advantages to be gained from the transaction is insufficient. The case also highlights the importance of clients choosing advisers correctly and ensuring, at all times, that they communicate and document their intentions effectively.

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