The recent amendments to the British Virgin Islands Trustee Act (the Act) has rightly resurrected an old rule commonly known as the rule in Hastings-Bass which is restricted by the decision of Futter v HMRC and Pitt v HMRC [2013] UKSC 26 (Pitt v Holt). 

In Hastings-Bass v IRC[1975] Ch 25 it was established that a trustee could apply to set aside a decision where it had taken or failed to take into account, relevant considerations in making a decision, which have resulted in untended consequences.

The rule in Hastings-Bass was widely valued by fiduciaries mainly because they were cloaked with standing to ask the Court to set aside either unauthorised decisions or those made without adequate deliberation when exercising their power. The rule in Hastings-Bass rule was sufficiently wide to cover decisions made by trustees that relied on expert tax advice that turned out to be wrong and resulted in adverse tax consequences.   The court then had discretion to set aside the exercise of the power.

However, the court's exercise of this discretion was narrowed by the decision of Pitt v Holt where the court decided that only decisions taken by the trustee in breach of duty could be set aside.  The court held that it was generally inappropriate for trustees to commence proceedings of this nature since they were not to be regarded “as uncontroversial proceedings in which they can confidently expect to recover their costs out of the trust fund”.

The Pitt v Holt restriction arguably triggered statutory intervention in numerous jurisdictions including the British Virgin Islands. The British Virgin Islands legislation has now achieved two things.  First, it has clarified that the court has an equitable jurisdiction to set aside a voluntary disposition on the ground of mistake, and second, it confirms that a trustee has standing before the court to seek an order setting aside a disposition into a trust based on a mistakes that may not have amounted to a breach of duty on the part of the trustee.

Section 59A of the Act confers jurisdiction on the BVI Court to set aside the exercise of a fiduciary power once satisfied that the person exercising the power, failed to consider relevant factors (whether of fact, law, or a combination) or conversely considered irrelevant factors in the exercise of his fiduciary power. But for this failure, the person who holds the power (i) would not have exercised the power; or (ii) would have exercised the power, on a different occasion; or (ii) would have exercised the power in a different manner.

Significantly, the conditions set out in section 2 of the Act may be satisfied without it being alleged or proved that the trustee acted in breach of trust or in breach of duty. Undoubtedly, the section has provided reassurance to BVI Trust companies when carrying out their decision making function.

The Act makes clear that section 59A shall not be taken to limit or otherwise affect the Court‘s jurisdiction under the doctrine of mistake. Therefore, the test in Pitt v Holt will continue to apply in circumstances not catered for. That is, where a settlor seeks to set aside a mistaken disposition into a trust. A settlor will be required to satisfy the following test for the court to exercise its equitable jurisdiction to set aside a mistaken disposition:

  1. There was a mistake on the part of the settlor either as to the legal effect of the disposition or as to an existing fact which is basic to the transaction;
  2. The mistake is of a relevant type; and
  3. The mistake is sufficiently serious and it would be unconscionable, or unjust, to leave the mistake uncorrected.

When considering the seriousness of the mistake, the court will objectively evaluate the facts of each case and consider whether it would be unjust, unfair and unconscionable to leave the mistaken disposition uncorrected. Consequently, a settlor should be mindful that the court will carefully consider the facts of each case and may not exercise its decision where the settlor has failed to satisfy the test in Pitt v Holt.  For this reason, the restoration of the rule in Hastings-bass is fully welcomed in the British Virgin Islands.

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.