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
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
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 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
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
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"
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
Where the Court has a discretion to set aside a transaction on
the ground of mistake, it must consider:
whether setting aside the transaction will be unjust to
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
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.
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