Vol 11 (2014) - Issue 2

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Jersey Trusts: Reversing Errors involving Trustees

For nearly 30 years now, in certain defined circumstances, trustees have been able to apply to court to set aside transactions they have entered into which have not had the desired effects (almost always from a tax point of view). The principle derives from the English case of Re Hastings-Bass [1975] CH25. Under English law, the circumstances in which the rule applies have recently been limited by the Court of Appeal and thereafter the Supreme Court in the conjoined appeals of Pitt v Holt; Futter v Futter [2013] UKSC26 ('Pitt/Futter'). In Jersey, by virtue of the terms of the newly and enacted Trusts (Amendment No. 6) (Jersey) Law 2013, which took effect on 25 October 2013, these newly defined limitations do not apply.
The rule in Hastings-Bass has been applied on numerous occasions over the years in a number of jurisdictions and has been refined and reformulated along the way, perhaps most notably in the case of Mettoy Pension Trustees Limited v Evans [1991] WLR1587. Until recently, the requirements in England for the relief were best summarised by Lloyd LJ in Sieff and Others v Fox and Others [2005] 1WLR 3811. To paraphrase that formulation, the court could, in its discretion, interfere with a transaction where:
(1) trustees are acting under a discretion given to them under the terms of the trust;
(2) the effect of the exercise of discretion is different from what they intended;
(3) the trustees have failed, in that they have taken into account irrelevant considerations or failed to take into account relevant ones;
(4) they would not have acted as they did but for the failure.

The above formulation was available to trustees whether their 'failure' arose from their own error or from that of their professional (usually tax) advisers. This changed with Pitt/Futter, in which the Court of Appeal and Supreme Court recognised that the rule in Hastings-Bass had been misunderstood and misapplied over the years and that it had its roots in trustee breach of duty as opposed to mistake.
The correct formation of the rule was encapsulated by the Court of Appeal in the following words: 'The cases which I am now considering concern acts which are within the powers of the trustees but are said to be vitiated by the failure of the trustees to take into account a relevant factor to which they should have had regard – usually tax consequences – or by their taking into account some irrelevant matter. It seems to me that the principled and correct approach to these cases is, first, that the trustees’ act is not void but that it may be voidable. It will be voidable if, and only if, it can be shown to have been done in breach of fiduciary duty on the part of the trustees. If it is voidable, then it may be capable of being set aside at the suit of a beneficiary, but this would be subject to equitable defences and to the court’s discretion. The trustees’ duty to take relevant matters into account is a fiduciary duty, so an act done as a result of a breach of that duty is voidable. Fiscal considerations will often be among the relevant matters which ought to be taken into account. However, if the trustees seek advice (in general or in specific terms) from apparently competent advisers as to the implications of the course they are considering taking, and follow the advice so obtained, then, in the absence of any other basis for a challenge, I would hold that the trustees are not in breach of their fiduciary duty for failure to have regard to relevant matters if the failure occurs because it turns out that the advice given to them was materially wrong. Accordingly, in such a case I would not regard the trustees’ act, done in reliance on that advice, as being vitiated by the error and therefore voidable'.