Knowledge

This briefing describes a remedy where a settlor or a fiduciary has made a transfer of property to a trust or where a trustee or fiduciary makes a decision that amounts to a mistake and in either case that transfer or that decision had adverse or unintended consequences and effects which the settlor, the fiduciary, the trustee or the beneficiaries wish to avoid.

Under the common law these remedies were known as "mistake" and "Hastings-Bass". Both have now been defined by statute in the Trusts (Amendment No.6) (Jersey) Law 2013 ("the Amendment No.6 Law"). Where the necessary facts are established, the Royal Court will normally set aside the transfer or the decision involved.

There may be other acts, decisions, omissions or procedural irregularities that can be set aside on other grounds such as rectification. This briefing does not cover those other matters.

The Amendment No.6 Law

The amendment was introduced to clarify the law of "mistake" and to clarify the Hastings-Bass principle after it was reinterpreted on 9 March 2011 by the English Court of Appeal and approved by the Supreme Court.

An application can be made under four special statutory provisions. Alternatively it can be made under Article II of the Trusts (Jersey) Law 1948 ("the Trusts Law") applying the established common law tests (as the Trusts Law is not a codification but a consolidation statute).

On 26 October 2013, the Amendment No.6 Law took effect and empowered the Royal Court to set aside:

(i) a transfer or disposition of property to a trust due to a mistake by a settlor or a person acting on behalf of a settlor provided:

(a) that person made a mistake in relation to that transfer or disposition; and
(b) would not have made that transfer or other disposition but for the mistake; and
(c) the mistake is of so serious a character as to render it just for the court to make the declaration. [Article 47E]

(ii) the exercise of a fiduciary power on the basis of a transfer or disposition of property to a trust due to a mistake by a person on behalf of a settlor and who owes a fiduciary duty to the settlor provided:

(a) that person failed to take into account any relevant considerations or took into account irrelevant considerations; and
(b) would not have exercised the power or not in that way but for the failure to take account of the relevant  considerations or taking into account irrelevant considerations. [Article 47F]

(iii) the exercise of a power by a trustee or other person due to a mistake in relation to a trust or trust property, provided:

(a) that person made a mistake in relation to the exercise of that power; and
(b) would not have exercised the power or not in that way but for the mistake; and
(c) the mistake is of so serious a character as to render it just for the court to make the declaration. [Article 47G]

(iv) the exercise of a fiduciary power by a trustee or other person exercising a power over or in relation to a trust or trust property and who owes a fiduciary duty to a beneficiary, provided:

(a) that person failed to take into account any relevant considerations or took into account irrelevant considerations; and
(b) would not have exercised the power or not in that way but for the failure to take account of the relevant  considerations or taking into account irrelevant considerations. [Article 47H]

• In (i) and (iii) above, mistake includes:

(i) a mistake as to the effect, the consequences, any advantage to be gained by the transfer or disposition and the exercise of a power; and
(ii) as to a fact existing at the time of or before the transfer disposition or the exercise of the power.
(iii) In (ii) and (iv) above, there is no need to show the seriousness of the mistake. Lack of care and other fault need not be shown.

• The application can be made by:

(i) a settlor or his personal representative;
(ii) the trustee exercising the power;
(iii) any other trustee;
(iv) a beneficiary or enforcer;
(v) the Attorney General, where there is a charitable connection; or
(vi) any other person with leave of the court.

Bona fide purchasers for value without notice are protected from orders affecting them.

• In Boyd v Rozel Channel Islands Ltd [2014] JRC 56 involving mistake and decided after the Amendment No.6 Law took effect, the Royal Court found that the common law tests still apply where the application was made under Article II. There may be many cases where the application can be made under either provision. Further, in both Robinson v Apex Trust Company Limited [2014] JRC 133 and Moffat v Apex Trust Company Limited [2014] JRC 252 the Royal Court held that the new statutory test for mistake was for all practical purposes identical to the old common law test.

Common law mistake

Prior to the statutory amendment there were grounds for setting aside a transfer or disposition called "mistake" or for setting aside the exercise of fiduciary power - called "Hastings-Bass".

Both are now as a matter of the Amendment No.6 Law described as "mistake".

Article II of the Trusts Law renders a trust invalid to the extent the court declares that the trust was established by mistake.

Under the common law, the Royal Court must be satisfied that:

• there was a mistake on the part of the settlor or trustee;
• the settlor or trustee would not have entered into the transaction 'but for' the mistake; and
• the mistake was of so serious a character as to render it unjust on the part of the donee to retain the property.

In England, the position used to be different, in that there was a fourth requirement (not present in Jersey law) relating to the nature of the mistake, namely that the mistake on the part of the donor had to be either as to the legal effect of the disposition or as to an existing fact basic to the transaction. A mistake merely as to a consequence (including fiscal consequences) was not sufficient. The Supreme Court in Pitt v Holt; Futter v Futter [2013] UKSC 26, [2013] STC 1148 has brought the Jersey and English common law positions on common law mistake together. The applicant in England will need to show a "causative mistake of sufficient gravity". Whilst the Supreme Court noted that this will normally arise out of a mistake as to the legal character of a transaction or as to a matter of fact or law which is basic to the transaction, mistakes as to consequences (including tax consequences) no longer fall outside the scope of the rule: importantly, consequences are relevant to the gravity of the mistake.

Common law Hastings-Bass

In Jersey the common law of Hastings-Bass is unlikely to apply as it is not mentioned in Article II of the Trust Law and Articles 47G and 47H are intended to reformulate the common law in Jersey and avoid the revised English test. Moreover, the statutory test set out in Articles 47G and 47H specifically states that there is no requirement to show lack of care or fault by the trustee or person exercising a fiduciary power. Crucially, the requirement of fault has been held to be part of the Hastings-Bass test under English common law by the Supreme Court in Pitt v Holt; Futter v Futter [2013] UK SC26 [2013] STC 1148. It seems likely that the English test (as revised by the English Court of Appeal and the Supreme Court) would be applied in Jersey if an application was made under the common law as opposed to the statute. The Royal Court indicated as much in the case of Re The B Life Interest Settlement [2012] JRC 229, even though this was an obiter statement. However, whilst in Jersey the common law test still technically applies, it is unlikely to be used in practice given the broad terms of Articles 47G and 47H.

Conclusion

The conclusion is that the statutory change has made Jersey a more attractive choice of trust jurisdiction.

At common law:
Mistake - The tension between England and Jersey in relation to equitable mistake has been unwound by the Supreme Court and the Jersey and English common law tests are now for all intents and purposes aligned.

Hastings-Bass - It remains to be seen whether the Royal Court will ever need to consider at all the English common law position. If it did so, it would only be if the Amendment No.6 Law could not apply in which case the Pitt v Holt test as set out by the Supreme Court would be likely to apply.

Statute
Since 25 October 2013, the Amendment No.6 Law, places the old Hastings-Bass principle and equitable mistake on a statutory footing. Both are now called mistake.

The new statutory test in relation to mistake follows the English and Jersey common law tests.

The statutory test in relation to Hastings-Bass stipulates similar requirements to the old English position (the test in Sieff v Fox [2005] EWHC 1312), not the Pitt v Holt; Futter v Futter test (the current English position). Accordingly, Jersey and English law now clearly differ so far as Hastings-Bass is concerned, as the requirement by the Amendment No.6 Law for a breach of fiduciary duty has been removed.

The broader Jersey test will avoid the need for hostile litigation against professional advisers in cases where trustees have taken and relied on professional advice which has turned out to be wrong. This it is submitted is right so that innocent beneficiaries do not suffer loss and then have to seek redress on wholly different and uncertain grounds against third parties, with additional risk, uncertainty and further loss of costs and fees.  Accordingly, the requirements for the Hastings-Bass type application now differ in Jersey from England.