Appleby's contentious trusts team recently acted in an application to the Royal Court to determine the availability of Hastings-Bass relief under Guernsey law.
The application was made by the current trustees of a Guernsey law trust (the Trust) to set aside the decision of former trustees to:
- cause shares in a UK listed company (the Shares) held by a BVI company owned by the Trust (the BVI Company) to be held directly by the trustees (the Transfer); and
- subsequently liquidate the BVI Company.
The Transfer had been undertaken by the former trustees owing to concerns over the BVI being a blacklisted jurisdiction in Italy and the potential for undesirable consequences from an Italian tax perspective. As a consequence of the Transfer, the Trust held relevant property for the purposes of UK IHT. This exposed the trust to a 6% charge on the value of the assets every 10 years on the anniversary of the settlement of the Trust for the duration of its holding of the Shares. Given the value of the Trust fund, this decision was a costly one that all parties were keen to unwind with the Court's blessing if possible.
The so-called rule in Hastings-Bass (which in essence is concerned with unpicking decisions made by trustees) has been widely reported since the decision of the Supreme Court of England and Wales in the conjoined appeals of Futter v HMRC and Pitt v HMRC. Under English law, the application of the rule in Hastings-Bass has been significantly tightened and it is now requisite for applicants to establish that trustees' inadequate deliberations have been sufficiently serious as to amount to a breach of fiduciary duty. Without such a breach, the Court will not be entitled to intervene.
The availability of the relief sought had not been previously confirmed by the Courts of Guernsey in respect of a Guernsey law trust. The Royal Court was, therefore, asked in the present case to consider whether the rule in Hastings-Bass formed part of the law of Guernsey.
In granting the application to set aside the Former Trustees' decision to undertake the Transfer, the Royal Court has confirmed the availability of the relief under Guernsey law.
Trustees have a fiduciary duty to acquaint themselves properly with the matters relevant to any decision that they may take. In completing the Transfer, the former trustees did not take account of the UK tax position, upon which they had not sought any advice. In such circumstances a breach of fiduciary duty could be established and it was not necessary for the Court to determine whether the stringent test applied by the Supreme Court in Futter v HMRC was also applicable under Guernsey law.
Whilst the question remains open as to whether a more lenient test for relief may apply under Guernsey law- namely, one that (in accordance with the prior leading decision under English law, Sieff v Fox  1 WLR 3811) does not require breach of a fiduciary duty - trustees will no doubt be heartened by the fact that they may be able to unwind decisions in respect of a Guernsey law trust that have been taken without proper consideration of matters which ought to have been taken into account.
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