The trustees of a Jersey discretionary trust (the
"Trust") had proposed to make an
investment and sought UK tax advice about how to do so without
generating a UK Capital Gains tax charge. The UK accountants
advised that the investment should be made through the Trust rather
than through a private investment company (the
"Company") which was owned by the trust
and two other connected family trusts as had initially been
proposed. As such, the Company provided loans to the trustees of
the Trust to enable the investment.
Unfortunately, as a result of changes to UK tax law after tax
advice had been obtained, the manner in which the investments had
been made triggered a UK tax liability. The trustee thus applied to
have the decision set aside under the Hastings-Bass principle.
Application of the Hastings-Bass
Once again the Court confirmed that the Hastings-Bass
principle is as much a principle of Jersey law as it is of English
law, as was made clear in In Green GLG Trust  JLR
571 ("Green GLG").
In considering the application of Hastings-Bass, the Court asked
itself the three questions laid down in Mettoy Pensions
Trustees Limited v Evans  WLR 158:
What were the trustees under a duty to
consider? In Sieff v Fox  EWHC 1312 ("Sieff v
Fox"), it was held that tax consequences were in general
relevant. Here, the purpose of investing in the manner adopted by
the trustees was to defer UK tax, and as such it must have been
relevant for the trustees to consider the UK tax consequences of
Did they fail to consider it? The trustee was
unaware of and so failed to consider the true UK tax position in
relation to the investments.
If so what would they have done if they had considered
it? The trustee would have proceeded differently had it
appreciated the true UK tax position. There was no need for the
Court to consider the issue of whether 'would' or
'might' is the correct test for the application of
Hastings-Bass as in this case the higher threshold was met. The
Court again avoided the question of whether the decision should be
regarded as void ab initio (from the beginning) or voidable by
setting aside the decision and declaring it to be of no
Requirement for Fault
The Court declined to find fault on the part of the trustee and
as such it was relevant to consider whether fault is a requisite
part of an application under Hastings-Bass. The Court accepted the
criticisms of the English case of Abacus Trust Co (Isle of Man)
v Barr  Ch 409 and, declining to follow that case, held
that there is no requirement under Jersey law to find fault or
breach of duty on the part of the trustee or its agents in order
for the Hastings-Bass principle to apply.
HMRC, in its Tax Bulletin 83 of June 2006, had argued for a
distinction to be made between cases where the trustee fails to
take into account fiscal considerations at all and cases where they
take steps to obtain advice and that advice turns out to be wrong.
In the latter case, they argued, Hastings-Bass should not apply.
The Court refused to make such a distinction on the basis that it
was presumably based upon the policy that in such circumstances a
trustee should suffer the tax consequences and pursue its remedies
against the tax advisors - the same policy that the Court had
rejected in Green GLG.
The protection of beneficiaries is a central theme in the
judgment, and it was noted in the judgment that Lloyd LJ in
Sieff v Fox saw the principle of Hastings-Bass as
providing protection for beneficiaries from trustees' mistakes,
rather than merely breaches of duty - a sentiment that was clearly
shared by the Court. In declining to require fault on the part of
the trustee or its agents, the Court has again refused to limit the
application of the Hastings-Bass principle, ensuring that it
remains a valuable remedy for trustees and beneficiaries alike.
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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