Make no mistake

This article was first published in the STEP Journal Trust Quarterly Review (Volume 24, Issue 3, 25 September 2024). 

It is now a little over 11 years since the UK Supreme Court (the Supreme Court) handed down its decision in the conjoined appeals in Pitt v Holt and Futter v Futter. This article looks at the current state of play in the law and practice in Guernsey and Jersey in the areas of ‘mistake’ and Hastings-Bass applications. 

For the purposes of the use of the terms in this article (and by way of broad reminder), the doctrine of mistake has typically been applied by the courts to set aside transfers of property into trust made on a mistaken understanding as to the effect of the transfer. Whereas, the rule in Hastings-Bass gave the court discretion to set aside an exercise of a power if the trustee failed to take into account relevant considerations that it ought to have when exercising the power or if the trustee took into account considerations that should have been disregarded.  

Applications that are brought to seek orders to set aside trusts or dispositions into trust, or the exercise of a power within a trust on the grounds of mistake, often have at their core a complaint that advice (typically tax advice) was not obtained or was wrong or incomplete. The doctrines are therefore incredibly helpful in circumstances where the only alternative avenue for relief would be for settlors or trustees to litigate against professional advisors or beneficiaries to sue their trustees. As recognised by the courts on many occasions when noting that as an alternative, settlors and/or beneficiaries are generally not at fault in such circumstances and yet face the risk of loss through avoidable tax charges. To force them to incur further expense, in what may be uncertain litigation when the law allows for the avoidance of a decision made in breach of the trustees' duties or by reason of mistake, seems unnecessary, undesirable and unjust.

The approach in the Crown Dependencies has been different, with Jersey opting for a legislated regime and Guernsey continuing to consider mistake and Hastings-Bass applications by reference to case law. An update on how those different approaches have been playing out in practice follows.

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