The settlor of a Jersey discretionary trust (the
"Trust") had transferred to the Trust certain rights
which he had in respect of a deferred compensation package offered
by his employer. In doing so he had taken advice from his
accountants as to the UK tax implications of such a course of
action. The addition to the trust fund was accepted by the trustees
and they resolved to execute two agreements (governed by Manx law)
by which the settlor assigned his interest in the compensation
package (the "Agreements").
It became clear that a substantial inheritance tax liability had
arisen on the transfer, as the accountant's advice had failed
to take into account inheritance tax implications. The trustee
applied to Court to have the agreements set aside under the
Hastings-Bass principle. The Court considered a number of
preliminary issues and held as follows:
Although the Agreements were governed by Isle of Man law, the
Trust was governed by Jersey law and as the Hastings-Bass principle
relates to the way in which a trustee exercises its discretion in
relation to a trust it was therefore appropriate to apply Jersey
Application of the Hastings-Bass Principle
Although the Hastings-Bass principle formed part of Jersey law
(In the matter of the Green GLG Trust  JLR 571) it was
necessary to ask whether the principle applied where the trustee
was accepting additional funds into the trust rather than
exercising its discretion. In the present case the trustee had
determined to enter into agreements in relation to the addition
and, as such, there was an exercise of discretion and Hastings-Bass
Application of Hastings-Bass to administrative discretions
It was also necessary to ask whether the principle applied to
administrative, as well as dispositive, discretions. In an English
case cited before the Court, the judge at first instance had
declined to apply Hastings-Bass to an administrative discretion.
However the Court was of the opinion that there was no reason in
principle to distinguish between administrative and dispositive
discretions - the principle is dependent upon the trustee acting
under a discretion; the nature of that discretion is
'Might' or 'Would'
The Court did not consider whether it would be sufficient that
the trustees 'might' or 'would' have acted
differently had they taken the relevant factor into consideration
because, as had been the case in the Green GLG case, the higher
test had been met on the facts.
Bona Fide Third Party Purchasers for Value
It was not clear that the principle could be easily applied to
set aside agreements with bona fide third party purchasers for
value. The Court expressed concern that it would lead to
uncertainty if agreements with trustees could be set aside on the
ground of deficiencies in the internal decision making process of
the trustee. However all parties in the present case agreed to the
remedy sought by the trustee, so this issue did not arise and was
Fault/Breach of Duty
The decision in Abacus v Barr  Ch 409, that some
fault or breach of duty on the part of the trustees was necessary,
had been much criticised; however even if this was a pre-requisite
it was clear from Sieff v Fox that a breach of duty can be
attributed to the trustee even where the fault is that of the
trustee's advisers. Therefore, the higher test was met because
the trustee's professional advisers were at fault.
In considering the Hastings-Bass principle, the court should ask
itself three questions (Mettoy Pensions Trustees Limited v
Evans  WLR 158):
What were the trustees under a duty to consider?
Following Sieff v Fox, the tax consequences of a decision are in
general relevant; here, it must have been relevant for the trustee
to consider UK tax implications since confirmation of these was
sought by the Jersey office of the accountants from the London
Did they fail to consider it?
The inheritance tax implications were not considered because the
advice was deficient in that respect.
If so what would they have done if they had considered it?
The trustee would not have entered into the Agreements had it
appreciated the tax implications. Accordingly the Court set aside
the decision and declared it to be of no effect. In doing so the
Court avoided the question of whether the decision should be
regarded as void ab initio (from the beginning) or voidable.
This judgment is extremely helpful in that it makes clear, as
far as the Jersey Court is concerned, that the Hastings Bass
principle can be applied to the exercise of administrative
decisions as well as to dispositive ones. Once more the Jersey
Court has been prepared to be brave and to push the boundaries of
this remedy out a little further which is good news for trustees
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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