Extra protection

Jersey has proposed its own rule change on Hastings-Bass, which could provide the Island's trusts with significant advantages over others, says Matthew Slater

Since 1204, the Channel Islands have, with only a couple of short-lived blips, owed their allegiance to the English crown. But that loyalty was secured on terms, that the Islands would have the right to be governed by their own laws. This essential point remains more than 800 years later. "The Island of Jersey," as the Jersey Royal Court said last year in B Life Interest Settlement [2012] JRC 229, "has its own separate legal jurisdiction." As a result, neither the Jersey parliament, nor its courts, need to follow the decisions of UK courts.

Against this constitutional background, ministerial support has now been given for drafting a revision to the Trusts (Jersey) Law 1984. These revisions, if passed, will codify the Jersey law on mistake and on the rule in Hastings-Bass.

Hastings-Bass would then be confirmed as another instance where Jersey and English trusts law differ, as they already do in relation to, for example, what qualifies as a charitable object and the definition of breach of trust.

Proposed law

The position established in Jersey case law on Hastings-Bass is that "a decision of a trustee was liable to be quashed where the trustee has taken account of irrelevant factors and/or ignored relevant ones", including matters relating to tax: Green GLG Trust [2002] JLR 571. As to mistake, a transaction can be set aside where it can be shown that a causative mistake of sufficient gravity has occurred. These are the rules as established in previous decisions of the Jersey Royal Court and which it now proposes to place on the statute books.

The proposals will apply not only to problems that arise when property is transferred into trust (lifetime transfers) but also those that arise later on when the trust is up and running.

These statutory remedies will ensure that, in Jersey, beneficiaries continue to be afforded extra protection when trustees or their advisers get things wrong. The effect will be in line with the past policy of the Jersey courts, which preferred the solution provided by Hastings-Bass to a negligence claim against the providers of the incorrect (usually tax) advice - an inherently uncertain and costly route, as the Royal Court emphasised in In the Matter of the S Trust [2011] JLR 375.

Transfer remedies

First, there will be a statutory remedy of setting aside, on the ground of mistake, a settlor's transfer or disposition into a trust. This includes a mistake made by one of two settlors (for example, where there is a husband and wife who are both settlors, and one party merely signs what is put in front of them).

It also covers a mistake by a person transferring on another's behalf, perhaps under a power of attorney, and where a settlor transfers to a trustee who, in then declaring a trust, makes a mistake.

Second, the remedy of setting aside an exercise of a fiduciary power in relation to a transfer or disposition into trust where an irrelevant consideration was taken into account or something relevant was omitted from consideration: in short, problems arising, on Hastings-Bass grounds, during the process of setting up a trust.

As for who can apply for this relief, the proposal is that it is limited, under each head, to the settlor or any of their personal representatives or successors in title.

Once the trust is up and running, there are the same two remedies. First, the remedy of setting aside, again on the ground of mistake, an exercise of a power or discretion in relation to a trust or trust property. Second, the remedy of setting aside an exercise of a power or discretion in relation to a trust or trust property and doing so on Hastings-Bass grounds - this fourth category is the classic Hastings-Bass territory.

These heads of relief can be applied for by the trustee who exercised the power, or any other trustee of the trust as well as by a beneficiary of the trust or its enforcer; the attorney-general, in relation to charitable trusts; and, as with Jersey directions applications generally, any other person, with the leave of the court, which would presumably include the protector of the trust, if any, and possibly the settlor too.

The specifics

• What is the relief? '¨The court is able to declare that the transaction is voidable and either has such effect as the court may determine - a wide remedial discretion - or is of no effect.

• Is breach of duty relevant? '¨No: it is expressly provided that, for Hastings-Bass relief, the remedies will be available whether or not the trustee was in breach of duty. Importantly, this includes those instances where the problems arose when the trustees, properly taking and properly relying on advice from appropriately qualified sources, later discovered that the advice was simply wrong, through no fault of the trustees themselves.

• To which trusts will this apply? '¨The changes apply only in relation to Jersey trusts, but that may include trusts that become Jersey law trusts, regardless of their original proper law.

• When did the problem need to occur? '¨The proposed law applies to transfers into trust and to exercises of discretion that occurred either before or after the coming into force of the new law.

Other trusts

On Hastings-Bass, the overall effect of the proposed legislation would be that all of the successful previous cases on Hastings-Bass in England and in Jersey would be likely to be successful if made in Jersey under the proposed law.

As to mistake, the proposal provides a helpful description of what is meant by mistake. Therefore, both mistakes as to effect and as to consequences are permitted, as well as mistakes of fact and of law. Further, the proposal includes mistakes as to any advantages (including tax advantages) sought to be gained by either a disposition or transfer of property to a trust; or the exercise of a power in relation to a trust.

Main limits

While the proposed legislation is wide, it is not without important restrictions:

• The mistake must be such that it would be unjust to the settlor (or their estate) for the property to be retained in the trust or for the exercise of the power to have the originally intended effect - this focus on the overall justice of the situation accords closely with Lord Walker's comments in Pitt v Holt [2013] UKSC 26, paragraph 124ff.

• The position of bona fide purchasers will not be affected.

• If there has been affirmation by '¨the settlor, or a long delay in '¨seeking the relief, this is likely to affect the exercise of the court's remedial discretion.

• The applicant will still have to show that they "would not" (not "might not") have acted in the way they did if not for the mistake or the Hastings-Bass problem.

Although it is never easy to predict how proposed legislation will operate in practice, this is certainly an exciting development. If passed, it will provide Jersey trusts with significant advantages over those governed by the laws of other jurisdictions.

Some may complain that Jersey is, by legislation, bypassing the UK Supreme Court decisions in Futter and Pitt. But there is no doubt that, for more than 800 years, Jersey has had the constitutional right to plough its own legal furrow. This is simply one further instance, quite permissibly, doing just that.

Matthew Slater is a barrister practising from 3 Stone Buildings

Matthew presented a session on Hastings-Bass at Jersey Finance’s private client conference in May