Summary

Appleby recently acted in the matter of Dervan and MD Events v Concept Fiduciaries Ltd and Others for applicants to the Royal Court of Guernsey who sought to set aside two dispositions into an employee benefit trust on the ground of mistake.

The intention behind the trust structure was to make provision for the first applicant for the rest of her life. However, once the trust had been established and the assets transferred into the trust it was subsequently established that the first applicant was actually excluded from being a beneficiary.

The matters before the Royal Court included detailed consideration of a number of important issues for this type of application including the applicable law, which parties ought to be convened for the hearing of the application and the principles set down by the English Court of Appeal in Pitt v Holt and Futter v Futter.

Background

The application was brought by two applicants, one of whom had made a gift of shares in her business (which represented the vast bulk of her accumulated wealth) into the trust. In addition, the application was also brought by the company which set up the trust in relation to a transfer of monies into the trust which were originally going to be paid as a dividend to the first applicant.

The intention behind the structure was to provide for the first applicant for the rest of her life. However, once the trust had been established and the assets transferred into the trust it was subsequently established that the first applicant was actually excluded from being a beneficiary.

Decisions of the Royal Court

Whilst the Royal Court had found that it had jurisdiction to hear the applications, the matter of which law the applications should be decided under was a point which required determination as a preliminary issue. The reason for this was because there were a number of facts which meant that the potential choice of applicable law could have been Guernsey law or English law. After hearing argument on this point the Royal Court found (on 7 December 2012) that the matter was to be determined in the Guernsey Royal Court but applying English law. The Royal Court's decision on this point of law represents an important and detailed analysis of this particular preliminary issue which had not previously been decided in such circumstances in Guernsey.

In the final substantive hearing the Jurats of the Royal Court found that the first applicant had not properly understood what she was doing when she transferred her shares into the Trust and that she was under a mistake of so serious a character as to render it unjust for the trust to retain those shares.

Accordingly, the Jurats were satisfied that the disposition of shares into the Trust resulted from a mistake of the type envisaged in the leading English case of Pitt v Holt. As a result, in its decision of 11 February 2013, the Court was content to exercise its discretion to set aside that disposition of shares. However, the Court also found that, in relation to the transfer of monies into the trust by the second applicant, there had not been an equivalent mistake and that aspect of the application was not granted.

This is a decision which is of great relevance to trustees, beneficiaries and settlors. It highlights the position whereby assets have been transferred into a trust where there was a serious mistake in so doing. In such circumstances it is possible for the Court to order that the mistake was of such a serious nature that the transfer be set aside and for the assets to be returned to the original owner. This is an important remedy which can have far reaching effects on a number of parties, particularly trustees and beneficiaries.

Advocate Jeremy Le Tissier and Adam Cole acted for the applicants in these proceedings before the Royal Court in Guernsey.

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