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
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
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.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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