Remedies for Mistake under Jersey law and the recent Royal
Court decision In the matter of the S Trust and the T Trust
As a matter of Jersey law, the doctrine of mistake operates to
permit a settlor who settles property on trust to apply to Court to
set aside or unwind transactions, where (i) there was a mistake on
the part of the settlor and (ii) the settlor would not have entered
into the transaction "but for" such mistake and (iii) the
mistake was of so serious a character as to render it unjust on the
part of the donee to retain (as confirmed In The matter of the
Lochmore Trust  JRC 068). The doctrine also applies in
respect of transfers, dispositions and appointments by a
Article 11 of the Trusts (Jersey) Law 1984 (the
Law) provides that a trust is invalid to the
extent that the Court declares that it was established, inter alia,
by mistake. In addition, Trusts (Amendment No. 6) (Jersey) Law 2013
(Amendment No. 6) (which came into effect on 25
October 2013) introduced four statutory remedies under the Law to
render a transfer or other disposition relating to trust property
or exercise of power voidable on the grounds of mistake or under
the "so called" Hastings-Bass principle. These remedies
enable the Court to intervene when a settlor or trustee has entered
into a transaction either by serious mistake (whether of law or
fact) or having failed to take into account the relevant
considerations (or having taken into account irrelevant
Crucially Amendment No 6 confirmed that fault on the part of the
trustee is not a pre-requisite to invoke the remedy of
Hastings-Bass as the statutory provisions codified the Jersey
position prior to Amendment No. 6 and reflect the tests for mistake
and Hastings-Bass as set out in decisions of the Royal Court prior
to the decision of the Supreme Court in Pitt v Holt and Futter
v Futter  UKSC. This marks a divergence from the English
law position but also provides certainty for settlors,
beneficiaries and trustees and avoids the prospect of instigating
litigation for professional negligence against advisors.
Amendment No. 6 only applies to Jersey trusts and the decision
of whether to grant relief is at the discretion of the Royal Court.
Helpfully, Amendment No. 6 permits the Royal Court to apply the new
powers with retrospective effect.
The Royal Court recently considered both Article 11 and one of
the new statutory remedies under Article 47E of the Law In the
matter of the S Trust and in the matter of the T Trust 
JRC259. This concerned an application to the Court by the
settlors of the S Trust and the settlors of the T Trust that
transfers of money made them into the S Trust and the T Trust
respectively be set aside on the grounds of mistake as to the tax
consequences of the transfers. HMRC was notified of the
representation and made written representations. The Trusts were
established with the purpose of minimising inheritance tax and on
the basis of advice received by Kevin Neal Associates Limited
(KNAL). However, far from being an effective scheme for avoiding
inheritance tax liabilities, the scheme proposed by KNAL was a
fiscal disaster giving rise to substantial tax charges.
The Court considered that whether looking at the matter under
Article 11 or under Article 47E of the Law, it does not matter
whether the mistake was of fact, law, as to the effect or as to the
consequences and that a mistake as to the tax consequences of a
trust or a transfer to a trust is a mistake for these purposes.
Whilst HMRC sought to rely on certain passages in Pitt v
Holt in order to persuade the Court not to set aside the
transfers into trust, the Court noted that the Jersey courts were
not bound by the Supreme Court and that the Jersey Court of Appeal
and the Privy Council could be expected to have regard to the
established Jersey line of authority and the Island's separate
Notwithstanding that the Court expressed its distaste at coming
to the rescue of persons who have sought to avoid foreign tax, it
nonetheless determined to exercise its discretion to set aside the
transfers. The Court commented that the balance of equity was
tipped "by a small margin" by the stress of
litigation endured by the first and second representors and, in
particular, the emotional stress that would be experienced by the
representors if the orders were not made and the effect of such
stress upon the children of the representors.
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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