Introduction
The Trusts (Amendment 6) (Jersey) Law 2013 came into effect on October 25 2013.The amendment enshrines into statute the existing Jersey law relating to the so-called 'rule in Hastings- Bass' and the doctrine of mistake.
The rule in Hastings-Bass gives the court discretion to set aside an exercise of power if the trustee failed to take into account relevant considerations that it should have borne in mind when exercising the power, or if it took into account considerations that should properly have been disregarded. In a not dissimilar manner, the doctrine of mistake permits a settlor who settles property on trust to apply to the court to set aside or unwind transactions.
For more information on the law in Jersey with respect to the application of the Hastings-Bass principle, please see "Royal Court reconsiders application of Hastings-Bass principle in Jersey".
Amendment 6
The effect of Amendment 6 is to insert four separate remedies into the existing Trusts (Jersey) Law 1984 to render a transfer or other disposition relating to trust property or exercise of power voidable on the grounds of mistake or under the rule in Hastings-Bass.
Remedies
Transfer or disposition of property by settlor on ground of mistake
Article 47E sets out the grounds on which the Royal Court may declare a transfer or other disposition of trust property to be voidable on the ground of mistake. The court has the power to intervene where a settlor or person exercising a power made a mistake in relation to the transfer or other disposition, and would not have made that transfer or disposition but for that mistake. The mistake can be one of fact or law, but it must be of so serious a character as to render it just for the court to exercise its power to set aside the transaction.
Exercise of fiduciary power under the rule in Hastings-Bass
Article 47F confers the power on the court to set aside a transaction where:
- the person exercising the power to make the transfer or disposition of trust property on behalf of the settlor failed to take in account any relevant considerations or took into account irrelevant considerations; and
- it is clear that he or she would not have effected the transfer had he or she not failed to take into account relevant considerations or had taken into account irrelevant considerations.
The relevant considerations may be advice from a professional adviser that should have been followed or, equally, incorrect advice that should not have been followed. This remedy applies to a person who exercises a power to transfer or make other dispositions of property to a trust on behalf of the settlor and who owes a fiduciary duty to the settlor.
Exercise of power in relation to a transfer or disposition of property on ground of mistake
Article 47G provides a remedy in cases where a person exercising a power made a mistake in relation to the exercise of that power. In such a case, the court may declare the transaction voidable with no effect or with such effect as the court may determine, on the grounds that the person made a mistake in the exercise of his or her power and would not have exercised the power (or would not have exercised the power in the way it was exercised) but for that mistake. As before, the mistake must be of so serious a character as to render it just for the court to intervene.
Exercise of power or discretion under the rule in Hastings-Bass
Where property has passed into trust and a trustee exercises its fiduciary powers or any person (acting other than in the capacity of trustee) exercises a power in relation to the trust or trust property, Article 47H permits the court to set aside the exercise of that power on the grounds that:
- the trustee or person failed to take in account any relevant considerations or took into account irrelevant considerations; and
- it is clear that he or she would not have exercised the power had he or she not failed to take into account relevant considerations or had taken into account irrelevant considerations.
Retrospective effect
Crucially, Amendment 6 permits the court to apply these new powers with retrospective effect to cases where the transfer of trust property, or the exercise of any power in relation to the trust, occurred either before or after the amendment came into force.
Applications and orders of the court
Applications to the court under Article 47E(2) or 47F(2) can be made by any settlor or any of his or her personal representatives or successors in title.
Applications under Article 47G(2) or 47H(2) can be made by:
- the trustee who exercised the power concerned or the person exercising the power; any other trustee;
- a beneficiary or enforcer;
- the attorney general, in relation to a trust containing charitable trusts, powers or provisions; or
- any other person, with leave of the court.
Amendment 6 will apply only to Jersey trusts and the decision of whether to grant relief will be at the discretion of the court. The court will not make an order that would prejudice a good-faith purchaser for the value of any trust property without notice of the matters that make the transfer of trust property or the exercise of power in relation to trust property voidable.
Comment
The key benefit of enshrining these principles in Jersey law is to provide greater certainty for settlors and beneficiaries, such that if a transaction is entered into and the results have adverse consequences for the trust fund, an application can be made to the Royal Court on a statutory basis to set aside the transaction. The amendment will also help in avoiding the uncertainty and costs of litigation for beneficiaries against professional advisers who may have provided incorrect advice and such advice has been acted on.
However, as the new statutory tests will not expressly overrule the body of case law previously applied by the court, it is likely that the common law will continue to develop (independently of the statutory test) and be available as a remedy.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.
