Jersey Trust Experts Examine Court Rulings
Tuesday, March 29, 2011
There was a significant turnout at a recent Jersey conference, which focused on
the precarious future of the Hastings-Bass principle, which sets out when a court
may intervene in cases where a trustee acts under his or her own discretion, particularly
in cases involving tax.
The conference, organized by Appleby, was the first to cover the English Court
of Appeal's recent decision in Futter v. Futter and Pitt v. Holt, and focused
on the future application of the Hastings-Bass principle, and the developments'
potential implications for Jersey law.
In Futter v. Futter, the trustees failed to account for Section 2(4) of the
Taxation of Capital Gains Act, 1992, which prevented the client, Futter, from
being able to offset personal portfolio losses against the trust’s significant
stockpiled gains. The trustee in this case successfully sought a declaration
that the advancements were void and of no effect, based on the rule in Hastings-Bass.
As part of the judgement, the Court agreed that the effect of the trustees’
actions, when exercising a discretion, were contrary to the trustees' intention.
The trustees' actions were therefore allowed to be rolled back.
The second case, Pitt v. Holt, ended with a ruling that the receiver, appointed
under the Mental Health Act, held the key roles of a trustee, and was exercising
his role on a discretionary basis - on the basis that the receiver was not under
the instructions of the beneficiary of the trust. The unintentionally incurred
additional tax liability was therefore considered in this case also.
These were appealed by HM Revenue and Customs, and in late-March the Court
of Appeals agreed that in these cases the application of Hastings-Bass was erroneous.
The case set a precedent that trustees acting on professional tax advice, where
that advice goes awry, will not have the legal fallback of Hastings-Bass.
At the conference attendees were warned that the judgement represents a fundamental
change in approach to dealing with trustee errors. Following the judgment, under
English Law, trustees will find it much more difficult to rely on the rule in
Hastings-Bass when seeking to set aside decisions made by them on the basis
of a misunderstanding as to the tax or legal consequences. For such applications
to succeed in future there will need to be a finding of fault or breach of trust
against the trustee.
Welcoming the interest in the firm's latest conference, Fraser Robertson, Partner
and Practice Group Head, Litigation & Insolvency at Appleby, commented:
“The conference was extremely well-received by our audience, and it will
be fascinating to see over the coming months the extent to which the dramatic
developments in Futter affect the law in Jersey in this important area for trustees.”