Background
The representor was the settlor (and sole discretionary beneficiary), who before setting up the trust, took advice from a UK tax adviser. The advice included the suggestion that due to the settlor's non-UK domicile and the international nature of his work, he would benefit from setting up a trust in Jersey to hold certain assets. The settlor relied on this advice and accordingly, set up a Jersey trust. A few years later and upon taking tax advice from a different tax advisor, it became apparent that the first adviser had failed to advise the settlor that as a deemed UK domiciliary, setting up a Jersey trust and in doing so, transferring the assets to the trustee, would incur a substantial UK tax liability. Due to this, the settlor made an application to the Royal Court on the ground of mistake under both Articles 11 and/or 47E of the TJL.
The Application
It was noted in the judgment that there is some lack of clarity in Jersey as to which Article of the TJL such an application should be brought under. However, the court referred to Robinson Annuity Investment Trust [2014] JRC 133 which provides a useful overview of the position as follows: "in so far as the transfer included the transfer which immediately constituted the trusts, Article 11 would seem to apply. In so far as the transfers were made to an existing trust, Article 47E would apply." However, often the setting up and transfer of property into a trust are inextricably linked; without any trust property, there can be no trust.
The Law
Article 11(2)(b)(i) TJL provides that the court can declare that a trust shall be invalid if the trust was established (inter alia) by mistake. The following judicial test has been cited in numerous cases such as In the matter of the Lochmore Trust [2010] JRC 068: "It follows that the court has to ask itself the following questions: (i) Was there a mistake on the part of the settlor? (ii) Would the settlor not have entered into the transaction "but for" the mistake? (iii) Was the mistake of so serious a character as to render it unjust on the part of the donee to retain the property?" The court also referred to In the matter of the Strathmullen Trust [2014] (1) JLR 309, in which it was noted that it is well settled in Jersey that a mistake about the tax effects of a particular transaction can be treated as a relevant mistake for the purposes of Article 11 TJL.
Article 47E TJL provides the court with the power, on application of the settlor (or through a person exercising a power) to set aside a transfer or disposition of a property to a trust due to mistake. Article 47E(3) states that: "The circumstances are where the settlor or person exercising a power - (a) made a mistake in relation to the transfer or other disposition of property to a trust; and (b) would not have made that transfer or other disposition but for that mistake; and the mistake is so serious a character as to render it just for the court to make a declaration under this Article."
The court found that there was a genuine mistake on the part of the settlor in setting up the trust, due to the fact he had not been advised of the UK tax consequences of doing so. It was accepted that had the settlor been so advised, the trust would not have been set up and the transfers into the trust would not have been made. It was held that, in this case, as the effect of the order would be to strip the trust of any assets and bring it to an end, that the application would be successful under Article 11 TJL. This may go some way in clarifying the distinction in mistake applications brought under Articles 11 and 47E, with the key question being: will a successful application result in the termination of the trust?
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