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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.”