SOME RECENT CASES ON TRUSTS

SOME RECENT CASES ON TRUSTS James Corbett QC Kobre & Kim LLP

THEMES Voluntary disposition by non-fiduciaries Mistakes by trustees – the “rule” in Hastings-Bass

VOLUNTARY DISPOSITIONS (1) The issue – whether and when the court will intervene to revoke or set aside a voluntary disposition made under a mistake by a non fiduciary Starting point – Ogilvie v. Littleboy, 1897, CA England: Gifts cannot be revoked, nor deeds of gift set aside, simply because the donors wish they had not made them and would like to have back the property given. Where there is no fraud, no undue influence, no fiduciary relation between donor and donee, no mistake influenced by those who derive any benefit by it, a gift, whether by mere delivery or by deed, is binding on the donor… In the absence of all such circumstances of suspicion a donor can only obtain back property which he has given away by showing that he was under a mistake of so serious a character as to render it unjust on the part of the donee to retain the property given to him. HL, 1899, referred also to: circumstances when misunderstanding on both sides may render it unjust to the giver that the gift should be retained

VOLUNTARY DISPOSITIONS (2) Self-evidently broad test and would expect it to be refined Many cases reviewed in Gibbon v. Mitchell, 1990: In my judgment, these cases show that, wherever there is a voluntary transaction by which one party intends to confer a bounty on another, the deed will be set aside if the court is satisfied that the disponor did not intend the transaction to have the effect that it did. It will set aside for mistake whether the mistake is a mistake of law or of fact, so long as the mistake is as to the effect of the transactionitself and not merely as to its consequences or the advantages to be gained by entering into it. Effect? Consequences? Suppose intended transaction has unintended tax consequence. Anker-Petersen v. Christensen, 2002: might justify setting aside disposition.

VOLUNTARY DISPOSITIONS (3) Thorough review in 2005 in Sieff v. Fox. Reiterated: There is jurisdiction to set aside voluntary disposition for mistake The jurisdiction is based on a broad principle of injustice (Ogilvie) Mistake must be as to the effect of the transaction Discrepancy may arise from a legal defect in the disposition or mistake of fact as to the position under the relevant trusts or as to the effect of the disposition in hands of the donee Mistake may be a misunderstanding of the nature of the trusts which would affect property after the disposition due to failure of advisers to explain the position properly Mistake as to fiscal consequences might be taken into account in the case of a non-fiduciary individual if sufficiently serious (but generally fiscal consequences are irrelevant) But more: Re Griffiths, Ogden v. Trustees of RHS Griffiths Settlement, 2008: The operative mistake must… be a mistake which existed at the time when the transaction was entered into. The mere falsification of expectations entertained at the date of the transaction is not… enough. Difficult to reconcile with Sieff in a number of respects.

VOLUNTARY DISPOSITIONS (4) Sieffleft open a number of questions, in particular the effect of tax consequences in the case of non-fiduciaries (irrelevant vs relevant if sufficiently serious) But nothing (legal) exists in a vacuum. In Jersey: JP v. Atlas Trust Co (Jersey) Limited, 2008 – also left open the question for future consideration In the matter of the A Trust, 2009 – faced up to the relevant vs irrelevant question (and the effect of the broad test in Ogilvie) and came down in favour of relevant if sufficiently serious and donor would not have entered into the disposition “but for” the mistake. In Isle of Man: Clarkson v. Barclays Private Bank & Trust (IoM) Limited, 2006: adopted the broad test in Ogilvie, based on seriousness and not confined to effect In re Betsam Trust, 2008: distinction between effect and consequences unworkable and broader test in Ogilvie to be preferred

VOLUNTARY DISPOSITIONS (5) AND THEN – Pitt v. Holt and Futter v. Futter, 2011 A substantial judgment which deals at length with the equitable jurisdiction to set aside a voluntary transaction for mistake On its way to the Supreme Court Key points: There are limits to when the court will intervene to set aside Correct test set out in Ogilvie. Sets “a very high test” for the gravity of the mistake (to provide protection for recipient) Must be a mistake on part of donor either as to legal effect of the disposition or as to an existing fact basic to the transaction Mistake must satisfy Ogilvie in terms of gravity Unforeseen fiscal liabilities are a consequence not effect and not sufficient The Jersey and IoM cases wrong and Griffiths doubtful

VOLUNTARY DISPOSITIONS (6) Postscript: not long before the effect of Pitt was considered in one offshore jurisdiction – Jersey In the matter of R, 2011 (CA): Test in Jersey to set aside for mistake is (a) was there a mistake, (b) would settlor/donor not have entered into transaction but for the mistake, and (c) was mistake so serious as to render it unjust on part of donee to retain property Ogilvie to be preferred to Gibbon Contrary to the views of the English CA, the Jersey cases had not ignored the distinction between effect and consequence – it had considered it and declined to adopt it The ATrust case was consistent with Ogilvie and provided for hurdles of its own The English test created conceptual and practical problems The court was troubled by the weight given to the tax authority Remains to be seen how other jurisdictions will respond.

RULE IN HASTINGS-BASS (1) Counterpart to setting aside voluntary dispositions by individuals Concerned with errors by fiduciaries (usually trustees) The two jurisdictions commonly run in tandem by fiduciaries but, per Sieff, the applicable rules are different and analogies not helpful Hastings-Bass, 1975 Facts quite complicated NB: powers of appointment, discretion, challenge by Revenue “To sum up the preceding observations, in our judgment, where by the terms of a trust… a trustee is given a discretion as to some matter under which he acts in good faith, the court should not interfere with his action notwithstanding that it does not have the full effect which he intended, unless (1) what he has achieved is unauthorised by the power conferred upon him, or it is clear that he would not have acted as he did (a) had he not taken into account considerations which he should not have taken into account, or (b) had he not failed to take into account considerations which he ought to have taken into account.”

RULE IN HASTINGS-BASS (2) Rule not considered again until 1990 Began to develop as trustee sought to impugn exercise of own power In response, rule acquired a positive formulation Mettoy Pension Trustees Limited v. Evans, 1990: where a trustee acts under a discretion given to him by the terms of the trust, the court will interfere with his action if it is clear that he would not have acted as he did had he not failed to take into account considerations which he ought to have taken into account Misgivings began to arise which led to perhaps more rigorous examination of mistakes in issue

RULE IN HASTINGS-BASS (3) The issues that began to emerge were: Would any mistake be sufficient as long as it would affect the decision of the trustee? What was the effect of application of the rule – would the act in question be void or voidable? Came up for decision in Re Barr’s Settlement Trusts, 2003 Facts horrible (if you are a professional trustee) Issues raised fundamental issues of principle Held: Rule did not require that the unconsidered relevant consideration should make a fundamental difference between the facts as perceived by T and facts as should have been perceived and actually were Mistake by T not sufficient of itself – must fail to consider what he had a duty to consider Successful challenge would make decision voidable not void Did not need to consider whether necessary that mistake would have lead to different decision or that might

RULE IN HASTINGS-BASS (4) Barr was controversial in its conclusions on at least two issues. Later cases tended to sidestep them Sieff v. Fox, 2005: A very grand trust with very grand trustees A tax mistake by the trustees A mistake an individual in giving consent to the transaction which gave rise to the problem On the issues considered in Barr- Error need not be fundamental T did not need to be under a duty in respect of the error (ie, at fault) Effect of the mistake (unless as to authority to act at all) was to make the mistaken transaction voidable not void As to whether it was required that the mistake would or might make a difference, then if T were under a duty to consider something, then rule required error might make a difference. If no duty/discretion, then would

RULE IN HASTINGS-BASS (5) Hastings-Bassrecognised and followed in many jurisdictions: Isle of Man: Clarkson v. Barclays Private Bank & Trust (IoM) Limited, 2006 Re Betsam Trust, 2008 Jersey: Re Seaton Trustees Limited, 2009 (reviews earlier cases) In the matter of the A Trust, 2009 Cayman Islands: A v. Rothschild Trust Cayman Limited, 2005 Barclays Private Bank & Trust (Cayman) Limited v. Chamberlain Re the Ta-Ming Wang Trust, 2010

RULE IN HASTINGS-BASS (6) Back to the future, forward to the past Pitt v. Holt, Futter v. Futter: Reconsideration of the rule from first principles Sieff overruled. A breach of duty is required on the part of T The positive test as set out in Mettoy Pension Trustees was never part of the rule As restated, the rule is expressed as follows (cont.):

(cont.) The cases which I am now considering concern acts which are within the powers of the trustees but are said to be vitiated by the failure of the trustees to take into account a relevant factor to which they should have had regard – usually tax consequences – or by their taking into account some irrelevant matter. It seems to me that the principled and correct approach to these cases is, first, that the trustees’ act is not void but that it may be voidable. It will be voidable if, and only if, it can be shown to have been done in breach of fiduciary duty on the part of the trustees. If it is voidable, then it may be capable of being set aside at the suit of a beneficiary, but this would be subject to equitable defences and to the court’s discretion. The trustees’ duty to take relevant matters into account is a fiduciary duty, so an act done as a result of a breach of that duty is voidable. Fiscal considerations will often be among the relevant matters which ought to be taken into account. However, if the trustees seek advice (in general or in specific terms) from apparently competent advisers as to the implications of the course they are considering taking, and follow the advice so obtained, then, in the absence of any other basis for a challenge, I would hold that the trustees are not in breach of their fiduciary duty for failure to have regard to relevant matters if the failure occurs because it turns out that the advice given to them was materially wrong. Accordingly, in such a case I would not regard the trustees’ act, done in reliance on that advice, as being vitiated by the error and therefore voidable.

RULE IN HASTINGS-BASS (7) Observations Where does the fiduciary duty to take relevant matters come from? Implied term of settlement? Inherent jurisdiction? Something else? Just how comforting is the reference to taking apparently competent advice? CYA? Position of beneficiaries affected by the decision? The Empire strikes back: In the matter of R, 2011 Not a Hastings-Bass case More generous test than English law may nevertheless be adopted Jersey CA expressly recognised that there may now be an advantage in choosing Jersey over England as domicile and proper law of trust Other jurisdictions

QUESTIONS? JAMES CORBETT QC James.Corbett@kobrekim.com Kobre & Kim LLP New York * Washington DC * Miami * London * Hong Kong

SOME RECENT CASES ON TRUSTS