Clarifying the Law on the ‘Hasting-Bass’ Rule in Guernsey.

The Guernsey Court of Appeal has handed down a landmark judgment clarifying the law on the “Hastings-Bass” rule. In a judgment that now sets the Guernsey law position differently to that in Jersey, the Guernsey Court of Appeal stated that in order to rely upon the rule there must be a sufficiently serious breach of duty by the trustee to take account of certain matters; inadequate deliberation constitutes a breach of duty. There is no further requirement, such as unconsionablity on behalf of the trustee, and whether or not the duty breached has to be fiduciary in nature is not decided. So once a sufficiently serious breach of duty is established, it is then within the court’s discretion to set aside the transaction. Guernsey law is therefore similar to that established in Pitt v Holt.

The effect of the position in Guernsey (as in England) is that an application for Hastings-Bass relief means that a Trustee accepts that it is in breach of a duty – and therefore is likely to have to (i) pay for the application; and (ii) is liable to be sued if the Court declines to grant the relief sought. In Jersey, the law is different given the statutory jurisdiction under article 47H and 47G of the Trusts (Jersey) Law 1984. Article 47H(3) confers a jurisdiction on the court to void a trustee’s exercise of a power where (a) in exercising that power, the trustee failed to take into account relevant considerations or took into account irrelevant considerations, and (b) the trustee would not have exercised the power in the way it did but for its failure to take into account the proper considerations.

However, crucially, and setting it apart from the position in Guernsey and the UK, article 47H(4) states that “it does not matter whether or not the circumstances set out in paragraph (3) occurred as a result of any lack of care or other fault on the part of the trustee or person exercising a power, or on the part of any person giving advice in relation to the exercise of the power”, therefore, a trustee is not necessarily exposed to costs orders or negligence claims as they may be in Guernsey and the UK. In addition, Article 47G allows the court to void the exercise of a power where (a) a trustee exercising a power made a mistake in relation to the exercise of that power (including any consequences), (b) the trustee would not have so exercised the power but for the mistake, and (c) the mistake was of ‘so serious a character as to render it just’ for the court to declare the exercise of the power voidable.

Both of these provisions were engaged in In the matter of the L Trust [2017] JR 191 in which the Royal Court set aside an exercise of a power by a trustee who had relied on incorrect tax advice when deciding to act. The Royal Court accepted that the tax consequences were a relevant consideration and as a result of the tax advice received being incorrect, the trustee had failed to take into account the actual tax position. The court went on to accept that the trustee would not have exercised its powers in the same way had it had the correct tax advice. Accordingly. The conditions of Article 47H were satisfied and the court set aside the exercise of the power. The court also came to the same result under Article 47G.

Similarly in In the Matter of the K Trust, an application was brought under Article 47(E) following the discovery of adverse tax consequences following the transfer of funds from a UK domiciled bank account to a Jersey trust. The court found that the facts of the case it was comfortably within the circumstances set out in Article 47E(3) and that the representor had been mistaken in believing that the transfers he made would not give rise to UK tax liability and it was self evident that he would not have made those transfers from his UK bank account if he had been advised of the tax liabilities. Given the quantum of liabilities, there was no question that the mistake was serious.

Lisa says: “the application of 47 (H) and 47 (G) demonstrate the Jersey courts ability to protect the interests of beneficiaries and of crucial importance, that the protection is available even when the trustee has acted properly and there is no breach of duty. If the same circumstances arose in Guernsey as they did in the L Trust, the court would not have been able to grant the relief sought.

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