25 October 2013

Trusts (Jersey) Law - Amendment No.6

The Trusts (Amendment No.6) (Jersey) Law 2013 (Amendment No.6) was enacted by the States of Jersey on 16 July this year, was sanctioned by the Privy Council on 9 October and came into force on 25 October 2013.

What will be the effect of the new legislation

Currently, in determining whether an action should be set aside on the grounds of mistake, or by applying the rule in Hastings-Bass, the Jersey courts must look to the principles that have been established through case law. Amendment No. 6 inserts new articles into the Trusts (Jersey) Law 1984 (the “Law”) putting the law of mistake and Hastings-Bass on a statutory footing for trusts governed by Jersey law.

Mistake

The statutory test for mistake is set out in a new Article 47E of the Law and closely mirrors the test that has been firmly established through Jersey case law, namely:
  1. Was there a mistake on the part of the settlor?
  2. Would the settlor not have entered into the transaction ‘but for’ the mistake?
  3. Was the mistake of so serious a character as to render it unjust on the part of the donee to retain the property?
As was emphasised by the Royal Court of Jersey in Re The B Life Interest Settlement 2012, the doctrine of mistake is as much available in respect of transfers, dispositions and appointments by a trustee as it is to transfers and dispositions of property by a settlor, and this has been reflected in the new legislation by the insertion of a new Article 47G.
 
In England, the Supreme Court’s decision in Pitt v Holt; Futter v Futter 2013 has brought the English and Jersey tests for mistake much closer together. Previously, English law had insisted that a distinction be drawn between the legal effect of a transaction and its consequences, a distinction that was difficult to draw in practice and could lead to injustice.

Hastings-Bass

The rule in Hastings-Bass derived from the English case of Hastings-Bass v Inland Revenue and Customs Re 1975, and was developed in the cases of Mettoy Pension
Trustees Limited v Evans 1990 and Sieff v Fox 2005. The principle was first applied by the Royal Court of Jersey in the case of In re the Green GLG Trust 2002, where it was
held that the Jersey courts would set aside the action taken by a trustee if:
  1. what it had achieved was not authorised by the power conferred upon it; or
  2. it was clear that it would not have taken the action if it had not ignored relevant considerations or taken into account irrelevant considerations.
On 9 March 2011, the English Court of Appeal in Pitt v Holt; Futter v Futter 2012 held that the law had taken a wrong turn and that the principle was in fact more restricted than the test set out in Sieff v Fox. Lord Justice Lloyd (who had originally decided Sieff v Fox) held that: “[the trustees’ act] 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.” Importantly, that meant that if the trustee had received professional advice before it did anything and had acted in accordance with that advice, the trustee would generally not be guilty of a breach of trust. On that basis, the Court would be unable to set aside the trustee’s action.
 
The Supreme Court upheld the Court of Appeal’s judgment on 9 May 2013 and confirmed that where the transaction in question was within the trustee’s powers, the
transaction can only be set aside where:
  1. the trustee failed to take into account a relevant factor to which it should have regard (often tax consequences) or taken into account some irrelevant matter;
  2. the failure was that of the trustee (as opposed to an adviser to the trustee); and
  3. the trustee’s failure was sufficiently serious to amount to a breach of fiduciary duty.
Because the application for Hastings Bass relief under English law requires proof of a breach of trust, the Court held that it must ordinarily be the beneficiaries and not the trustee who apply to set the decision aside. In effect, in English law Hastings Bass relief can now be seen as one of the possible remedies in hostile proceedings against a trustee, and may sit alongside a claim for restoration of the trust and financial compensation.

How do the statutory provisions fit?

The Jersey courts had recently appeared to be moving towards adopting the stricter English law test for Hastings-Bass relief: Re The B Life Interest Settlement 2012 and Re the Onorati Settlement 2013 where it was said that “any party wishing to submit that Jersey law should continue to plough its own furrow will have to explain why the closely reasoned judgments of Lord Walker and Lloyd LJ should not be applied.”
 
However, the statutory provisions in Amendment No.6 reflect the test as set out in the various decisions of the Royal Court prior to Pitt v Holt. The new statutory provisions are found in new Articles 47F and 47H of the Law, which respectively provide for the setting aside of an exercise of a fiduciary power in relation to the transfer or disposition of property into trust, and setting aside an exercise of a power or discretion in relation to a trust or trust property. In both cases, importantly, there is no requirement for the person seeking the remedy to establish that there has been a lack of care or any fault on the part of the person who exercised the power, or on the part of any person giving advice in relation to the exercise of power (new Articles 47F(4) and 47H(4)).
 
Article 47I provides that an application based on the Hastings Bass principles may be made by the trustee or other person who exercised the power concerned, any other trustee, a beneficiary, an enforcer (in the case of a Jersey purpose trust), the Attorney General in relation to a trust containing charitable trusts, powers or provisions or any other person with the leave of the Court.

Other points to note

Article 47D provides that the new statutory provisions will apply to transactions that occur either before or after the coming into force of Amendment No. 6.
 
A useful aspect of the Amendment No.6 is the specific disapplication under new Article 47C of the Law of the doctrine of erreur. Erreur is a Jersey customary law concept in connection with Jersey law governed contracts and, if proven, is a factor that will make a contract void. The possibility of the doctrine of erreur being applicable to the transfer of property into a Jersey law trust was discussed at some length in the B Life Interest Settlement case and the extent of its application was uncertain. The clarification provided by the Amendment No.6 for applications brought under the new provisions is welcome.

Conclusion

While there will be judicial consideration on a case by case basis of when the new statutory remedies may be granted, the new legislation will provide certainty as to the legal tests applicable to this area of law. The test for Hastings-Bass relief in particular is now more favourable than in English law and by comparison emphasises the best interests of settlors and beneficiaries of Jersey trusts. As Jersey is the only jurisdiction to have made statutory provision for the principles on which these equitable remedies will be granted, it is again at the forefront of trust law developments internationally.
 
Please note that this briefing is only intended to provide a very general overview of the matters to which it relates. It is not intended as legal advice and should not be relied on as such.
 
© Carey Olsen 2013
 

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