Trusts (Jersey) Law 1984 in Trusts & Trustees by Jersey Finance

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Trusts & Trustees, Vol. 20, No. 3, April 2014, pp. 212–218

Articles The first statute is erected on the battlefield of Hastings-Bass William J Byrne

Abstract

Jersey was safely delivered of a law On the 9th of October 2013, Her Majesty the Queen met with four of her Right Honourable Privy Counsellors—Nick Clegg, Danny Alexander, Iain Duncan Smith, and Theresa May. Amongst the business at hand for those standing in the traditional horseshoe arrangement in Buckingham Palace, was consideration of the Trusts (Amendment No. 6) (Jersey) Law 201-. By and with the advice of her

The value of assets held in Jersey trusts, or in SPV structures underneath them, has recently been estimated at »0.4 trillion

doi:10.1093/tandt/ttu004 Advance Access publication 21 February 2014

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The UK Court of Appeal decision in Pitt v Holt left other trusts jurisdictions considering their position. By the time the Supreme Court handed down their judgment on 9 May 2013, an amendment to the flagship Trusts (Jersey) Law 1984 had been discussed, decided upon, drafted and was poised for debate. On 25 October 2013, that amendment came into force. The ‘twitching corpse’ of Hastings-Bass left by the Court of Appeal may finally have been put out of its misery in the UK by their Lordships, but its soul and spirit has flown south. It now walks abroad offering its own brand of penitential pragmatics where a transfer into trust or the exercise of a trust power or discretion has failed to work out as planned. The ‘blame game’ merry-go-round may still, in the right circumstances, be effectively avoided by those in a position to take advantage of this alternative.

Privy Council, Her Majesty was, ‘pleased to approve and ratify the Act’. Contrary to commonly held belief, there is no constitutional requirement for prior consideration of Jersey and Guernsey laws by the British Parliament. Under an Order in Council made just days after Her Majesty the Queen’s accession to the throne in 1952, any law of Jersey or Guernsey, after being approved by the legislative assembly of its respective island, is required instead to be submitted for assent to a Committee of the Privy Council and, thereafter, to the Queen in Council. This is but one example of the curiosities of constitution and convention which delicately govern the relationship between the Crown Dependencies and the UK. As its epithet suggests, ‘Trusts 6’ is only the sixth amendment to the Trusts (Jersey) Law 1984 (the ‘TJL 1984’) in nearly 30 years. The TJL 1984 is, evidently, something of a treasured inheritance for the Island and a mainstay of Jersey’s financial services industry. The value of assets held in Jersey trusts, or in SPV structures underneath them, has recently been estimated at £0.4 trillion1; any jurisdiction seeking to augment legislation, which underpinned an industry of this size and significance, would be dutybound to approach the task with a certain forensic zeal.

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Trusts 6 (in 250 words) The amendment itself achieves this codification with an almost clinical logic,5 splitting the chief task between just four central articles. The first two of these articles concern themselves with the transfer of property into trust where there has been, respectively, mistake (Article 47E), or an exercise of a fiduciary power in ‘Hastings-Bass circumstances’ (Article 47F). The settlor or any of his personal representatives and successors in title can apply for relief under these provisions. The second two of these articles concern themselves with the exercise of a power or discretion in relation

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to property already held in trust, again distinguishing between where that power or discretion has been mistakenly exercised (Article 47G) or exercised in ‘Hastings-Bass circumstances’ (Article 47H). The class of applicant for relief under these provisions is wider, embracing the trustee who exercised the power, any other trustee, a beneficiary, the Attorney General (for charitable trusts) or any other person with the leave of the court (eg a settlor or protector). ‘Mistake’ is widely defined (Article 47B(2)) to embrace mistake as to effect or consequence, mistake of fact or law and mistake as to any advantage (eg tax advantage) sought to be gained by the disposition, transfer or exercise of a power. The relief is only available for Jersey law trusts.

Beware the presumption of paternity Observers of this development might be forgiven for thinking that Trusts 6 represents the first in (what may well turn out to be) a series of offshore, reflex reactions to the decision handed down on 9 May 2013 by the Supreme Court in Futter v HMRC and Pitt v HMRC.6 On the facts, however, such a conclusion is demonstrably not the case. Work on the amendment commenced in 2012 and by the time that Ministerial support for the amendment was first publicised in April 2013, the amendment was already circulating in largely final form. Whilst the Supreme Court’s ultimate and definitive conclusions were, no doubt, of interest to Jersey politicians and policy-makers, it would seem that they, at least, were not determinative of the path chosen by Jersey. Instead, the conception of Trusts 6 can more plausibly be traced to the Court of Appeal decision in Pitt, a decision which worked to cloud the extensive and previously robust line of Jersey Hastings-Bass authorities with an unwelcome air of fragility.

2. (1899) 15 TLR 294. 3. Re Lochmore Trust [2010] JRC 068 at para 10 (rehearsing the test adopted in Re the A Trust [2009] JRC 245). 4. [2011] EWCA Civ 197; [2012] Ch 132. 5. This article does not intend to deal at length with the provisions and reasoning behind them; the text of the amendment as lodged is available at 5http:// www.statesassembly.gov.je/AssemblyPropositions/2013/P.062-2013.pdf4 accessed 5 February 2014 and this document contains both a Report to the States Members (the legislature) and a full Explanatory Note. 6. [2013] UKSC 26.

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What renders Trusts 6 an extra sheen of noteworthiness and topicality, however, is its singlemindedness. Rejecting the miscellany of its ‘Trusts 5’ predecessor, it instead focuses its nine Articles to just one task in hand: to insert into the TJL 1984 provisions which codify Jersey’s jurisprudence relating to the doctrine of mistake and the so-called rule in Hastings-Bass. The Jersey test for mistake in the trusts context is, very briefly put, that in Ogilvie v Allen,2 namely, ‘whether the donor or settlor was under some mistake of so serious a character as to render it unjust on the part of the donee to retain the property given to him’.3 The Jersey position on the rule in Hastings-Bass also mirrors, in large part, that of the English courts prior to the Court of Appeal decision in Pitt v Holt,4 allowing applications for relief where a settlor or trustee has failed to take into account considerations which he ought to have taken into account, or taken into account considerations which he ought not to have taken into account. Both principles now stand to be carved into the statutory architecture of the Island.

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Whilst the Supreme Court’s ultimate and definitive conclusions were, no doubt, of interest to Jersey politicians and policy-makers, it would seem that they, at least, were not determinative ofthe path chosen by Jersey

The problem of persuasive authority

Although the Judicial Committee of the Privy Council is our ultimate court of appeal, Jersey is not, and never has been, a colony to which the corpus of English law has been exported.

That said (and whilst, when viewed across the whole of the jurisprudential spectrum, the Royal Court 7. 8. 9. 10.

retains its unique amalgam of Norman, French, and English law influences), in matters of finance, commerce and (crucially) trusts there is a degree of close conformity with the UK. In Ex parte Viscount Wimbourne,9 a case decided even before the passing of the TJL 1984, the Royal Court confirmed that in the absence of Jersey authority, it could look to English trusts law authority. This is hardly surprising given that many of the provisions of the TJL 1984 have been held to be ‘simply reflections of the preexisting law of English principles’.10 In any event, the eyes of Jersey’s trusts advocates and judiciary, both before and since Viscount Wimbourne, have had occasion to stare northwards across the English Channel for ‘non-binding but persuasive’ inspiration.

Trouble at Pitt The influence of the English Court of Appeal’s decision in Pitt no doubt prompted thoughts amongst Jersey practitioners of an impending jurisprudential hiatus. What would be the outcome when the ‘remarkable’, ‘comprehensive’, and ‘clarifying’ conclusions of Lloyd LJ in Pitt circled a pointed toe on the floor and fluttered their persuasive lashes at the Royal Court’s own separate and well-developed case law on the doctrine of mistake and the ‘rule in HastingsBass’? The swell of uncertainty over the timing, result and, indeed, the impact and effect, of any appeal in Pitt to the Supreme Court would have prompted, if not catalysed, an enquiry into possible statutory intervention.

What would be the outcome whenthe‘remarkable’, ‘comprehensive’, and ‘clarifying’ conclusions of Lloyd LJ in Pitt circled a pointed toe on the floor and fluttered their persuasive lashes at the Royal Court’s own separate and well-developed case law on the doctrine of mistake and the‘rule in Hastings-Bass’?

See Holt, ‘Jersey 1204: The Origins of Unity’ in A Celebration of Autonomy, St Helier (2005) 122. [1999] JLR 119 at 125. [1983] JJ 17. Re Esteem Settlement [2002] JLR at 53.

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To understand this further, it may assist to dip a second toe into the ancient constitutional waters and observe the ripples that unite and divide Jersey’s legal system from its English equivalent. As with its legislature, Jersey has enjoyed judicial independence for over 800 years. Indeed, by some accounts, it was ‘turning off of the tap of justice’— the sudden inability to issue civil writs out of the Exchequer of Caen when Normandy was overrun by King Philip of France in 1204—which prompted Jersey to turn towards England, swear allegiance to the Crown and commit itself through the Constitutions of King John.7 Jersey’s Royal Court, in consequence, boasts an ancient and illustrious history, administering law and justice since the 13th century and claimed by some to be the oldest land court in Europe. As a general rule, and whilst there are significant procedural similarities with the UK court system, the Royal Court does not automatically import UK common law in wholesale fashion. The Royal Court has, intermittently, felt obligated to re-state this fact, such as in Qatar v Al Thani,8

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The vigour of such an enquiry would only have been amplified and accelerated by the Deputy Bailiff’s judgment in Re B Life Interest Settlement:

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Hastings-Bass offshore

Court has to follow the changed approach of the English courts to the Hastings-Bass doctrine, or it has

clear that the limits of the principle are still to be

to adopt some other reasoning for continuing to follow

developed . . . it is certainly not every decision by trus-

the historic approach. We add that if we are to have any similar rule to that which has previously been applied,

tees which they later come to regret that can be declared void15.

There is no doubt that the decisions of the Royal Court in this area so far have simply been to apply the historic Hastings-Bass rule as developed at first instance in other English decisions, and we would have followed those decisions of the Royal Court, were it not for the decision in Pitt-v-Holt in the English Court of Appeal. If that decision stands, then a departure from the line of

it can only be because it is legitimate to assert it by extrapolation of what we do have, or by enunciation 11

of principle.

This stance was recently re-emphasized by the Bailiff in September 2013 in Re Onorati Settlement: It has . . . not been necessary to consider whether Jersey law in relation to the principle [of HastingsBass] should be modified so as to accord with the current state of English law. We propose to say nothing further on the topic therefore other than to say that the position remains open, although any party wishing to submit that Jersey law should continue to plough its own furrow will have to explain why the closely reasoned judgments of Lord Walker and Lloyd LJ should not be applied.12 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23.

Coincidentally, perhaps, this judgment was delivered just months after a certain Walker LJ—poised, as he was, to enter the House of Lords—had given his own extra-curial views on the limits of the principle.16 In the dozen years since Green GLG Trust, the Royal Court has become well-acquainted with the rule in Hastings-Bass through a regular diet of cases17 such as Re RAS I Trust18 (2002), Re Winton Investment Trust19 (2007), Re Howe Family No 1 Trust20 (2007), Re Seaton Trustees Limited21 (2009), Re R Trust22 (2011), Re B Life Interest Settlement23 (2012) and, most recently, Re Onorati Settlement (2013). Each has had its part to play in the development and application of the principle. In Howe, for example, the Royal Court confirmed that there was no requirement for fault or breach of duty on the part of the trustees

[2012] JRC 229. [2013] JRC 182. [2002] JLR 571. ibid at paras 27 and 28 respectively. ibid at para 29. R Walker, ‘The Limits of the Principle in Re: Hastings-Bass’ (2002) 4 Private Client Business 226. For a fuller summary of the historic case law, see the judgment of William Bailhache DB in Re the B Life Interest Settlement [2012] JRC 229 at paras 55–58. [2002] JRC 187. [2007] JRC 206. [2007] JRC 248. [2009] JRC 050. [2011] JRC 085. [2012] JRC 229.

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reasoning in the judgments of the Royal Court based on the previous authorities is inevitable. Either the

Looking to that ‘furrow’, the rule in Hastings-Bass may have been a gawky teenager by the time it received any further attention from the UK courts, but it was maturing into its mid-twenties before the Royal Court confirmed its application in Jersey, the Deputy Bailiff in Re Green GLG Trust13 concluding that it was, ‘but a manifestation of the general principle that a trustee must act in good faith, responsibly and reasonably’ and ‘was entirely consistent with precedent and principle’.14 But (he went on to observe with some prescience), it was:

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Hastings-Bassçthe latest victim of a new tax morality Standing back, one is bound to ask how a misnamed rule, illegitimately birthed from a misunderstood ratio and allowed to wander at will around common law jurisdictions—time and again being spared the rod of Revenue intervention—now stands poised to mature into a statutory form. Several attributions for its popular appeal could be advanced, but chief amongst them must be (when taken down to its most basic level) that it provides a solution—more properly, an alternative solution—to a real and particular need, a need that has its roots in human failings and frailties.

Lord Neuberger’s analogy of the rule with the ‘morning-after pill’ is—in this regard at least— characteristically apt.27 Unfortunately, perhaps, this comparison has a tendency to be repeated in the Hastings-Bass context with the same pejorative overtones and accompanying, smirking moral judgments that afflict the medical treatment. The dominance of Hastings-Bass in applications to reverse fiscally unfortunate decisions is probably to blame, particularly in the current, post-recessional, political climate where tax appears to have surrendered the goal of achieving certainty in favour of the ease of arguing morality. In his judgment Lord Walker goes to some trouble to paint a picture of ‘wealthy families for whom taxes are a constant preoccupation’. He suggests this is particularly so for offshore trusts, run by corporate trustees whose officers and staff know relatively little about the settlor or the settlor’s family and who see ‘their essential duty as unquestioning obedience to the settlor’s wishes’.28 In executing his somewhat nondiscriminating portrait of the whole of ‘offshore’ with the widest of moral paintbrushes, Lord Walker notably refrains from mentioning the sophisticated family offices, (in Jersey at least) the world-class regulation applied to every single professional trust services provider and the vast quantity of philanthropic and charitable enterprises run by and through the users of offshore services. In my view, it is questionable to think of HastingsBass merely as an indiscriminate, over-the-counter treatment for those with loose tax morals. Even if there are occasions where this looks to be the case, it is equally questionable to restrict relief only to those trustees or settlors who took no advice. Were one to extend Lord Neuberger’s analogy, the situation for women would be certainly clarified, but hardly improved, if the emergency contraceptive pill was restricted to those who had given no consideration to the consequences of their action, denying those

24. 2009-10 GLR 216. 25. Scottish Law Commission, ‘Consultation Paper on Defects in the Exercise of Fiduciary Powers’ December 2011. 26. ibid at para 46 (p 15). 27. In Trusts and Trustees, a paper by Lord Neuberger of Abbotsbury presented to the Chancery Bar Association in London on 16 January 2009, his Lordship said that the Rule in Hastings-Bass had become, ‘a magical morning-after pill (for) trustees suffering from post-transaction remorse . . .’. 28. Futter at paras 65–67.

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in order to found an application on the Hastings-Bass principle. Many of the other international finance centres, by contrast with Jersey (and possibly the Cayman Islands), have rarely had the opportunity even to consider the doctrine, let alone fine-tune its ambit and application. There are no reported Hastings-Bass decisions from Bermuda, the BVI or the Isle of Man and Guernsey’s jurisprudence is limited to an interlocutory hearing in Gresh v RBC Trust Company (Guernsey) Ltd and HMRC.24 Nevertheless, since the Supreme Court decision and in disregard of any dearth in domestic case law, several of these jurisdictions are reported to be actively considering following Jersey’s lead in advancing statutory amendment. The offshore community is not necessarily alone. In December 2011, some 9 months after the Court of Appeal ruling in Pitt, the Scottish Law Commission consulted on the subject.25 It proposed that Scots Law should permit a challenge to the exercise of a fiduciary power, establishing as one of the grounds for such challenge to be ‘failure by the fiduciary to take relevant considerations into account or taking irrelevant considerations into account’.26

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who had taken precautions but nevertheless found themselves compromised.

It is questionable to think of Hastings-Bass merely as an indiscriminate, over-the-counter treatment for those with loose tax morals

beneficiaries are entitled to proper administration of the trusts of which they are beneficiaries. This is an important policy consideration especially in this jurisdiction. It seems to us that the law should strive for a position where more beneficiaries will obtain more benefit from well administered trusts, and it is counter-intuitive to permit a rule where sloppy trust administration is forgiven and the consequences put right whenever necessary if an application is made to Court.29

For the Bailiff, in re Onorati Settlement, the argument appeared to tilt in favour of the former:

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Ultimately, one is probably obliged to accept the rule’s Janusian personality. Hastings-Bass can clearly be viewed a force for good—necessary, desirable and just—allowing innocent beneficiaries an alternative option to rectify the acts of mal-advised trustees. It is equally a lifeline that can be grasped by a feckless or reckless trustee whose Machiavellian devotions are constantly focussed on tax avoidance but who lacks sufficient wherewithal, or quality of advice, to achieve what was intended. The views of Jersey’s ministerial and legislative bodies have clearly, on balance, been persuaded that the advantages of the former outweigh the risks of the latter. After all, there remains nothing automatic, or indeed cheap, or for that matter, private, about an application for relief. Offending trustees or settlors will need consciously to submit to the doctrines of equity and to choose the path of public penitence. Nobody who has ever sat with any regularity through an Anglican Church service can fail to notice the parallelism between Buckley LJ’s statement of the Hastings-Bass principle and the lines in the General Confession, the act of contrition of the 1662 Book of Common Prayer viz. ‘We have left undone those things which we ought to have done and have done those things which we ought not to have done’. One might justifiably assume that Buckley LJ sat through a good many morning services in the chapels of Eton and Trinity College, Oxford.

More generally, we are not attracted by the proposition that beneficiaries should be left to a remedy of bringing litigation against trustees or professional advisers. The beneficiaries are usually not at fault and have already incurred loss by reason of unnecessary 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 seems unnecessary, undesirable and unjust.30

29. Re B Life Settlement at para 102. 30. Re Onorati Settlement at para 44.

Long live the ‘rule in Mettoy’ So, in Jersey at least, the ‘rule in Mettoy’ will live on— as will its ‘Hastings-Bass’ moniker (despite that term being entirely absent from Trusts 6). Even Lord Walker, in full valedictory stride, felt the correction of the inapposite misnomer to be beyond hope. His Lordship’s pained fortitude and frustration at

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In the period between Pitt and Trusts 6, even Jersey’s Royal Court has appeared torn between the angels and the demons, between the desire to punish or incentivise trustees and the desire to protect beneficiaries. In Re B Life Interest Settlement the Deputy Bailiff appeared to lean towards the latter, holding that,

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this tenacious misdescription is (stretching Lord Neuberger’s analogy to near breaking-point) no doubt shared by the manufacturers and prescribers of emergency contraceptive pills, whose effectiveness is evidently reduced by some degree when left till ‘the morning after’. If there is any silver lining in the official Supreme Court immortalization of ‘Hastings-Bass’, it must be that the legal community will continue to enjoy the irresistible, creeping fish references that

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float non-chalantly into articles across the academic spectrum.

The legal community will continue to enjoy the irresistible, creeping fish references that float non-chalantlyinto articles across the academic spectrum And in that very tradition: ‘Hastings-Bass: Battered but still being served in Jersey.’

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William Byrne is a UK barrister (non-practising) and Head of Technical at Jersey Finance Limited. E-mail: William.byrne@jerseyfinance.je.