Doctrine of Mistake enshrined on Jersey trust law

12 November 2013

Following Privy Council approval, the Trust (Amendment No.6) (Jersey) Law 2013 (the “Amendment”) has been enacted.  This Amendment gives statutory force to the case law developed in Jersey in relation to the Hastings-Bass principle and the doctrine of mistake for trusts governed by Jersey law.  The Amendment is retrospective and rejects the narrowing of Hastings-Bass by the Supreme Court of England and Wales in the 2013 decisions in Pitt v Holt and Futter v Futter, while reinforcing the similarity of the Royal Court and Supreme Court approach to mistake.  The enactment of the Amendment is welcomed by the trust sector as it brings clarity and avoids the need to engage in hostile litigation.

Jersey case law had provided that where trustees have acted in good faith, responsibly and reasonably, the Royal Court could set aside their actions if the consequences were detrimental to the beneficiaries.  It was not necessary to prove any lack of care or fault on the part of the trustees or their advisers.  This contrasted with the current view (following the cases mentioned above) of the Supreme Court, where for Hasting-Bass to apply, there must have been a breach of the trustees’ fiduciary duty, meaning that future application of the principle would only be considered in hostile proceedings against trustees.

 

Effect of the Amendment on Jersey cases based on Hastings-Bass;

The exercise of a fiduciary power relating to the transfer or disposition of property into a trust by someone acting on behalf of a settlor or the exercise of a fiduciary power in relation to a trust or trust property may be voidable even where there is no lack of care or fault by the fiduciary or their adviser, if irrelevant considerations have been taken into account or relevant considerations have not been taken into account. (Articles 47(F) and (H))

It must be demonstrated that the transfer or disposition or exercise of the fiduciary power would not have been effected but for this failure to take into account relevant considerations or having taken into account irrelevant considerations.

The relevant considerations may be advice from a professional adviser which ought to have been followed or incorrect advice that should not have been followed.

Thus, it is likely that these provisions will reduce the need for hostile litigation since no negligence or breach of duty will have to be proved.

 

Effect of the Amendment on Jersey cases based on the doctrine of Mistake:

If a mistake is made by a settlor or someone acting on his behalf when transferring or making a disposition of property into a trust, or by a trustee when exercising a power in relation to the trust, and it can be proved that the transaction or power would not have been exercised but for that mistake, then the exercise of the power is voidable. (Articles 47(E) and 47(G))

The mistake can be as to fact or law, including foreign law. It includes (but is not limited to) a mistake about the effects of, the consequences of, or any of the advantages to be gained by, a transaction.

The mistake must be of so serious a character as to render it just for the court to make a declaration.

 

Where applications made on the basis of Hastings-Bass or mistake are successful, the Court may declare that the transfer or disposition of property or the exercise of a power is voidable and either of such effect as the Court may determine, or of no effect from the time the action was taken.  The Court may consequently make such order as it thinks fit, but the rights of any bona fide purchaser for value of any trust property will not be prejudiced.

An application for a declaration by the Court under Articles 47(E) and (F) can be made by a settlor or by any of their personal representatives or successors in title.  Applications under Articles 47(G) and (H) can be made by among others, the trustee or other person who exercised the power, any other trustee, a beneficiary or any other person with the leave of the Court.

It should be noted that common law remedies relating to mistake and Hastings-Bass will continue to be available.  This is a complex area of law and legal advice should be sought in all such cases.

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