The Next Step In The Life Of Hastings-Bass

The next step in the life of Hastings-Bass

The codification of the rule in Hastings-Bass and the principles in relation to mistake has just taken effect in Jersey.

The changes will have retrospective effect and will provide certainty to settlors, trustees, other fiduciaries and beneficiaries of Jersey trusts, particularly in the wake of the English Supreme Court decision in Pitt v Holt and Futter v Futter [2013] UKSC 26.

The new Jersey law will confirm:

1. that a transfer or disposition of property into a trust by a settlor (or someone acting on his behalf) may be voidable where the settlor has made a serious mistake in relation to that transaction and it is shown that he would not have made the transaction but for the mistake. The definition of a mistake set out in the new law includes a mistake of fact or law, including foreign law;
2. that a transfer or disposition of property into a trust by someone acting on behalf of a settlor in a fiduciary capacity may be held voidable if the fiduciary took into account irrelevant considerations or failed to take into account relevant considerations and would not have entered into the transaction if they had only taken into account the relevant considerations. Crucially, it is not necessary for the fiduciary to be shown to have been at fault; and
3. that where a person makes a mistake when exercising a power in relation to the trust, the exercise of the power may be held voidable where it can be shown that the person would not have exercised the power but for a mistake.

This new statutory test will not overrule but will run along aside the existing common law principles established to date.

In the recent case of In the matter of the Onorati Settlement [2013] JRC 182, the Jersey Royal Court revisited the Hastings-Bass jurisdiction. This case involved a distribution by trustees which resulted in unnecessary and additional English tax being payable. The distribution was not questioned nor considered sufficiently by the trustee and they did not seek tax advice. The trustee relied on the assurance of a beneficiary that they had taken advice without requesting a copy. The Royal Court followed the Supreme Court in Pitt v Holt and Futter v Futter [2013] UKSC 26, and the instrument of appointment in question was set aside as result of the trustee's breach of fiduciary duty for not having sufficient regard to the tax consequences of the distribution.

The Court indicated that, where there was a breach of fiduciary duty, it was not attractive for beneficiaries to be left to obtain a remedy by litigation against trustees or professional advisers and to incur further expenses in so doing. Such a course seems unnecessary, undesirable and unjust in circumstances where the law allows for the avoidance of a decision made in breach of the trustees' duties.

HMRC was given notice of the Jersey proceedings but did not take part. It reserved any rights to contend that any order of the Jersey Court under the Hastings Bass jurisdiction would not be recognised in England. The Royal Court observed that the governing law of the trust was Jersey law and accordingly as a result of its decision, the trust would continue as if the distribution was never made to the beneficiaries in question.

This case is a good reminder to trustees to always seek adequate independent tax advice when exercising their dispositive powers.

The new legislation in Jersey will allow beneficiaries to pursue a remedy in situations even where the trustee was not necessarily in breach of trust. In situations where the new statutory test does not apply, there may be scope for claimants to rely on the old test under the established common law principles, for example, where there have been errors in the professional advice received. Under the old test a trustee's acts may be set aside by the Court (and as a consequence put the trustees and beneficiary in the position they were in before entering that transaction) where the actions were based on professional advice which subsequently turned out to be incorrect.

The Isle of Man Government is currently considering legislation similar to that now in effect in Jersey.

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.