The recent Jersey case of GL v Nautilus considered a situation where acting on professional advice, the settlor (the "Settlor") settled an English law discretionary trust (the "Trust") having a Jersey trustee (the "Original Trustee").

Under the terms of the Trust the Settlor and any person "connected with" him were excluded persons and therefore incapable of becoming beneficiaries of the Trust or benefiting from it. The expression "connected with" was defined as having the same meaning as in the Income and Corporation Taxes Act 1988 ("ICTA").

The Trust deed conferred a power of amendment upon the Settlor, but this power was restricted so that it could not be used to alter the provisions concerning an excluded person. The Trustees had the power under the trust Deed to lend any part of the trust fund to any person. As a result a number of loans were made to the Settlor (the "Transfers").

The Settlor exercised his power to amend the Trust deed to provide for his wife and children to be added as beneficiaries of the Trust after the death of the Settlor.

Nautilus Trustees Limited ("Nautilus") was appointed as trustee in place of the Original Trustee. Subsequently the Settlor was advised that:

  1. under the terms of Trust the trustee could not make loans to him on favourable terms in the manner envisaged when the Trust was created as that would be to confer a benefit on him inconsistent with him being an excluded person; and
  2. under the terms of the Trust it was not possible for his wife and children to be added as beneficiaries after his death, as he intended, as they would arguably remain "connected with" him.

The Settlor considered that if he had known of these facts he would not have settled the Trust. The Settlor therefore applied to the Royal Court for the Trust and certain gifts into it to be set aside on the grounds of these mistakes.


As the Trust was governed by English law, the Court applied English law. It was agreed that under English law a gift would be set aside for mistake if the donor did not intend the transaction to have the effect it did. The mistake of the donor may be of fact or law but the donor must be mistaken as to the actual effect of the transaction and not just a mistake about the consequences of the transaction.

Where the Court has a discretion to set aside a transaction on the ground of mistake, it must consider:

  1. whether setting aside the transaction will be unjust to beneficiaries; and
  2. whether any third parties will be prejudiced.

The Court was satisfied that the Settlor would not have settled the Trust if he had known he could not borrow from the Trust on non commercial terms or if he had known that his widow and children could not benefit. The English legal advice provided to the Court was clear that non-commercial loans could not be made to the Settlor but the situation about the ability of the Settlor's widow to benefit was less clear. However, the mistake about the loans was sufficient to allow the Court to consider if it should exercise its equitable jurisdiction to set aside the Trust.

The Court was satisfied on the facts that it should exercise its discretion and the Trust and transfers into it would therefore be set aside.


This is a helpful case to show that a Trust may be set aside where there has been a clear mistake by a settlor. Although the Court had to apply English law, it is likely that this case will provide useful guidance to trusts governed by other laws.

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.